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
-----------------
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
Commission file number 0-13348
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BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
------------------------------------------------------
(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.)
2355 Waukegan Road
Bannockburn, Illinois 60015
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 267-1600
--------------
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 ]
PART I
Item 1. Business
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Balcor Equity Pension Investors-II A Real Estate Limited Partnership (the
"Registrant") is a limited partnership formed in 1984 under the laws of the
State of Illinois. The Registrant raised $234,896,750 from sales of Limited
Partnership Interests. The Registrant has retained cash reserves from the sale
of its real estate investments for contingencies which exist or may arise. The
Registrant's operations currently consist of interest income earned on
short-term investments and the payment of administrative expenses.
The Registrant originally funded seven loans and acquired five real property
investments plus a minority joint venture interest in an additional real
property investment 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 August
1997. The Registrant has retained a portion of the cash from the property sales
to satisfy obligations of the Registrant, as well as to establish a reserve for
contingencies. The timing of the termination of the Registrant and final
distribution of cash will depend upon the nature and extent of liabilities and
contingencies which exist or may arise. Such contingencies may include legal
and other fees and costs stemming from litigation involving the Registrant,
including, but not limited to, the lawsuit discussed in "Item 3. Legal
Proceedings". Due to this litigation, the Registrant will not be dissolved and
reserves will be held by the Registrant until the conclusion of all
contingencies. There can be no assurances as to the time frame for conclusion
of these contingencies.
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 Equity Partners-II, 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
estate property investments.
Item 3. Legal Proceedings
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Dee vs. Walton Street Capital Acquisition II, LLC
- -------------------------------------------------
On June 14, 1996, a proposed class and derivative action complaint was filed,
Dee vs. Walton Street Capital Acquisition II, LLC (Circuit Court of Cook
County, Illinois, County Department, Chancery Division ("Chancery Court"), Case
No. 96 CH 06283) (the "Dee Case"), naming the General Partner and the general
partners (the "Balcor Defendants") of nine other limited partnerships sponsored
by The Balcor Company (together with the Registrant, the "Affiliated
Partnerships"), as well as the Affiliated Partnerships, as defendants.
Additional defendants were Insignia Management Group ("Insignia") and Walton
Street Capital Acquisition II, LLC ("Walton") and certain of their affiliates
and principals (collectively, the "Walton and Insignia Defendants"). The
complaint alleged, among other things, that the tender offers for the purchase
of limited partnership interests in the Affiliated Partnerships made by a joint
venture consisting of affiliates of Insignia and Walton were coercive and
unfair.
On July 1, 1996, another proposed class action complaint was filed in the
Chancery Court, Anderson vs. Balcor Mortgage Advisors (Case No. 96 CH 06884)
(the "Anderson Case"). An amended complaint consolidating the Dee and Anderson
Cases (the "Dee/Anderson Case") was filed on July 25, 1996.
The complaint seeks to assert class and derivative claims against the Walton
and Insignia Defendants and alleges that, in connection with the tender offers,
the Walton and Insignia Defendants misused the Balcor Defendants' and
Insignia's fiduciary positions and knowledge in breach of the Walton and
Insignia Defendants' fiduciary duty and in violation of the Illinois Securities
and Consumer Fraud Acts. The plaintiffs amended their complaint on October 8,
1996, adding additional claims. The plaintiffs requested certification as a
class and derivative action, unspecified compensatory damages and rescission of
the tender offers. Each of the defendants filed motions to dismiss the
complaint for failure to state a cause of action. On January 7, 1997, the
Chancery Court denied the plaintiffs' motion for leave to amend the complaint
and dismissed the matter for failure to state a cause of action, with
prejudice.
On February 3, 1997, the plaintiffs filed a Notice of Appeal of the Chancery
Court's order to the Appellate Court of Illinois. Oral arguments before the
Appellate Court were held on March 18, 1998. On November 12, 1998, the
Appellate Court issued an opinion affirming the Chancery Court's dismissal of
the case. On December 3, 1998, the plaintiffs filed a notice of intent to
appeal the Appellate Court's ruling to the Illinois Supreme Court.
The Balcor Defendants intend to vigorously contest this action. No class has
been certified as of this date. The Registrant believes it has meritorious
defenses to contest the claims. It is not determinable at this time how the
outcome of this action will impact the remaining cash reserves of the
Registrant.
<PAGE>
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
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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 previous distributions, see "Item 7. Management's Discussion and
Analysis of Financial Condition 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 35,454.
Item 6. Selected Financial Data
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Year ended December 31,
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1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
Total income $328,271 $3,648,658 $23,817,831 $21,585,862 $20,684,580
Provision for
investment property
writedown None None 968,000 None None
Provision for loan
receivable
writedown None None None 768,066 None
(Loss) income before
net gain on sales
of properties
and affiliates'
participation in
joint ventures (105,414) (2,997) 7,402,708 5,707,529 5,808,928
Net (loss) income (105,414) 8,582,915 19,499,123 4,556,857 4,889,802
Net income per
Limited Partner-
ship Interest-
Basic and Diluted None 9.13 19.73 4.00 4.40
Total assets 3,603,909 4,460,240 103,531,343 120,655,642 123,673,352
Cash distributions
per Taxable
Limited Partnership
Interest(A) None 2.60 10.40 5.20 5.20
Cash distributions
per Tax-exempt
Limited Partnership
Interest(A) 0.95 126.52 22.02 6.92 6.92
(A) These amounts include distributions of original capital of $0.95, $123.06
and $8.18 per Tax-exempt Limited Partnership Interest during 1998, 1997 and
<PAGE>
1996, respectively. No distributions of original capital were paid to Taxable
Limited Partners during the last five years.
Item 7. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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Operations
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Summary of Operations
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Balcor Equity Pension Investors - II A Real Estate Limited Partnership (the
"Partnership") sold four properties and the property in which it held a
minority joint venture interest in 1996 and sold its remaining four properties
in 1997. The Partnership recognized substantial net gains as a result of these
sales. During 1998, administrative expenses were higher than interest income
earned on short-term investments and settlement income. As a result, the
Partnership recognized a net loss for 1998 as compared to net income in 1997.
As a result of lower net gains from property sales in 1997 as compared to 1996
and lower income from property operations in 1997 due to the property sales,
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 Ammendale Technology Park - Phase I, the 100 Ashford
Center North office buildings, the Bingham Farms Office Plaza - Phase V, and
the Ross Plaza Shopping Center during 1997. As a result, rental income, service
income, depreciation, amortization expense, property operating expenses, real
estate taxes and property management fees ceased during 1997.
Higher average cash balances were available for investment during 1997 due to
proceeds received by the Partnership from the 1997 and 1996 property sales,
prior to distribution to Partners. This resulted in a decrease in interest
income on short-term investments during 1998 as compared to 1997.
The Pacific Center office buildings, which were owned by a joint venture
consisting of the Partnership and an affiliate, were sold during December 1996.
During April 1998, the Partnership received $117,892 as its share of a
settlement related to a dispute with a former tenant at the property. This
amount was recognized as settlement income for financial statement purposes
during 1998.
The Partnership recognized other income during 1997 in connection with partial
refunds of prior years' insurance premiums relating to the Partnership's
properties.
The Partnership incurred lower accounting, investor processing, portfolio
management, legal and professional fees and lower bank charges and postage
<PAGE>
costs during 1998 as compared to 1997 resulting in a decrease in administrative
expenses during 1998 as compared to 1997.
The Partnership sold the 100 Ashford Center North office building in February
1997, the Bingham Farms Office Plaza - Phase V in July 1997, and the Ross Plaza
Shopping Center in August 1997 and recognized gains totaling $8,664,860 from
these property sales. The Partnership sold the Ammendale Technology Park -
Phase I office building in February 1997 and recognized a loss of $78,948 on
the property sale.
1997 Compared to 1996
- ---------------------
The Partnership sold the Spalding Bridge Apartments and the 1275 K Street,
Denver Centerpoint, and Westech 360 office buildings during 1996. As a result
of the 1996 and 1997 property sales, rental income, service income,
depreciation, property operating expenses, real estate taxes and property
management fees decreased during 1997 as compared to 1996.
Higher average cash balances were available in 1996 primarily due to the
proceeds received by the Partnership from the Colonial Coach and Castlewood
West loan prepayment in 1995 prior to distribution to Partners in October of
1996 and the proceeds received from the sale of the Spalding Bridge Apartments
in September 1996 prior to distribution to Partners in January 1997. This
resulted in a decrease in interest income on short-term investments during 1997
as compared to 1996.
The Partnership participated in the operations of the Pacific Center office
building, in which it held a joint venture interest, prior to its sale in 1996.
As a result of the sale, the Partnership's participation in income of joint
venture with an affiliate ceased during 1996.
The Partnership's amortization expense during 1997 and 1996 consisted of the
amortization of deferred leasing commissions related to the commercial
properties and, upon sale of the properties, the write-off of the remaining
unamortized leasing commissions.
The Partnership incurred higher consulting, investor processing, legal, postage
and printing costs in connection with its response to a tender offer and
related litigation during 1996. As a result, administrative expenses decreased
during 1997 as compared to 1996.
Provisions were charged to income when the General Partner believed an
impairment had occurred to the value of its properties. Determinations of fair
value were made periodically on the basis of assessments of property operations
and the property's estimated sales price less closing costs. Determinations of
fair value represented estimations based on many variables which affect the
value of real estate, including economic and demographic conditions. During
1996, the Partnership recognized a provision for investment property writedown
of $968,000 to provide for a change in the estimate of fair value of the
Ammendale Technology Park - Phase I office building.
During 1996, the Partnership sold the Spalding Bridge Apartments and the Denver
Centerpoint, Westech 360 and 1275 K Street office buildings and recognized
<PAGE>
gains totaling $20,627,020 on three of the property sales and recognized a loss
of $5,028,903 on the 1275 K Street Office Building sale.
The 1275 K Street and Westech 360 office buildings were owned through joint
ventures with affiliates. The affiliates participated in the operations of the
properties prior to their sales in 1996. As a result of the sales, affiliates'
participation in income from joint ventures ceased during 1996.
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership decreased by approximately $707,000 as of
December 31, 1998 when compared to December 31, 1997 primarily due to the
distribution made to Tax-exempt Limited Partners in April 1998 consisting
primarily of available Net Cash Proceeds from the release of the holdback on
the 100 Ashford Center North Office Building. Operating activities generated
cash of approximately $79,000 and consisted of the collection of receivables
related to several sold properties, income from a settlement of a dispute with
a former tenant at the Pacific Center Office Buildings and interest income
earned on short-term investments, which were partially offset by the payment of
administrative expenses. Financing activities consisted of a distribution to
the Tax-exempt Limited Partners of approximately $786,000.
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 August
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 lawsuit discussed in "Item 3.
Legal Proceedings". Due to this litigation, the Partnership will not be
dissolved and reserves will be held by the Partnership until the conclusion of
all contingencies. There can be no assurances as to the time frame for
conclusion of these contingencies.
The Pacific Center Office Buildings, which were owned by a joint venture
consisting of the Partnership and an affiliate, were sold during December 1996.
In April 1998, the Partnership received $117,892 as its share of the settlement
related to a dispute with a former tenant at the property.
The Partnership sold the Ross Plaza Shopping Center during 1997. Pursuant to
the sale agreement, $100,000 of the sale proceeds was retained by the
Partnership pending the resolution of a dispute with a tenant at the property.
The funds were released in full to the Partnership in February 1998.
The Partnership made distributions totaling $2.60 and $10.40 per Taxable
Interest in 1997 and 1996, respectively, and $0.95, $126.52 and $22.02 per
Tax-exempt Interest in 1998, 1997 and 1996, respectively. Distributions to
Tax-exempt Limited Partners were comprised of $0.95 of Net Cash Proceeds in
1998, $3.46 of Net Cash Receipts and $123.06 of Net Cash Proceeds in 1997, and
$13.84 of Net Cash Receipts and $8.18 of Net Cash Proceeds in 1996.
<PAGE>
Distributions to Taxable Limited Partners were comprised of Net Cash Receipts
in both 1997 and 1996. No distributions were made to Taxable Limited Partners
in 1998.
Taxable Limited Partners have received cash distributions aggregating $116.78
per $250 Taxable Interest, of which $90.95 represents Net Cash Receipts and
$25.83 represents Net Cash Proceeds and Tax-exempt Limited Partners have
received cash distributions aggregating $279.05 per $250 Tax-exempt Interest,
of which $121.03 represents Net Cash Receipts and $158.02 represents Net Cash
Proceeds. In accordance with the Partnership Agreement, Net Cash Proceeds from
the property sales were distributed to the Tax-exempt Limited Partners. Taxable
and Tax-exempt Limited Partners received quarterly distributions from Net Cash
Receipts. 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 in accordance with
the Partnership Agreement. Amounts allocated to the Repurchase Fund will also
be distributed at that time. Taxable Limited Partners will not receive
aggregate distributions from the Partnership equal to their original
investment. However, Taxable Limited Partners will receive a distribution from
amounts allocated to the Repurchase Fund.
In February 1997, the Partnership discontinued the repurchase of Interests from
Limited Partners. As of December 31, 1998, there were 24,071 Interests and cash
of $2,896,122 in the Repurchase Fund.
The Partnership sold all of its remaining real property investments and
distributed a majority of the proceeds from these sales to Tax-exempt Limited
Partners in 1997. Since the Partnership no longer has any operating assets, the
number of computer systems and programs necessary to operate the Partnership
has been significantly reduced. The Partnership relies on third party vendors
to perform most of its functions and has implemented a plan to determine the
Year 2000 compliance status of these key vendors. The Partnership is within its
timeline for having these plans completed prior to the year 2000.
The Partnership's plan to determine the Year 2000 compliance status of its key
vendors involves the solicitation of information from these vendors through the
use of surveys, follow-up discussions and review of data where needed. The
Partnership has sent out surveys to these vendors and received back a majority
of these surveys. While the Partnership cannot guarantee Year 2000 compliance
by its key vendors, and in many cases will be relying on statements from these
vendors without independent verification, preliminary surveys indicate that the
key vendors performing services for the Partnership are aware of the issues and
are working on a solution to achieve compliance before the year 2000. The
Partnership is in the process of developing a contingency plan in the event any
of its key vendors are not Year 2000 compliant prior to the year 2000. As part
of its contingency plan, the Partnership will identify replacement vendors in
the event that current vendors are not substantially Year 2000 compliant by
June 30, 1999. The Partnership does not believe that failure by any of its key
vendors to be Year 2000 compliant by the year 2000 would have a material effect
on the business, financial position or results of operations of the
Partnership.
Certain statements in this report constitute "forward looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. These
statements may include statements regarding income or losses as well as
assumptions relating to the foregoing.
<PAGE>
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 Financial Statement 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 $ 3,603,909 $ 26,113,682 $ 4,460,240 $ 26,833,516
Partners' capital
(deficit):
General Partner (884,312) (3,873,621) (778,898) (3,898,625)
Limited Partners 4,374,325 29,873,410 5,160,001 30,676,130
Net (loss) income:
General Partner (105,414) 25,004 None (4,139,470)
Limited Partners None (17,044) 8,582,915 (9,868,521)
Per Limited Part-
nership Interest None(A) (B) 9.13(A) (B)
(A) Amount represents basic and diluted net income per Limited Partnership
Interest.
(B) The net income (loss) is $0.01 per Tax-exempt Interest and $(0.24) per
Taxable Interest for 1998 and $(16.08) per Tax-exempt Interest and $30.46 per
Taxable Interest for 1997.
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) Neither the Registrant nor Balcor Equity Partners-II, its General Partner,
has a Board of Directors.
(b, c & e) The names, ages and business experience of the executive officers
and significant employees of the General Partner of the Registrant are as
follows:
TITLE OFFICERS
Chairman, President and Chief Thomas E. Meador
Executive Officer
Senior Vice President Alexander J. Darragh
Senior Managing Director, Chief Jayne A. Kosik
Financial Officer, Treasurer
and Assistant Secretary
Thomas E. Meador (age 51) joined Balcor in July 1979. He is Chairman,
President and Chief Executive Officer and has responsibility for all ongoing
day-to-day activities at Balcor. He is a member of the board of directors of
The Balcor Company. He is also a Senior Vice President of American Express
Company and is responsible for its real estate operations worldwide. Prior to
joining Balcor, Mr. Meador was employed at the Harris Trust and Savings Bank in
the commercial real estate division where he was involved in various lending
activities. Mr. Meador received his M.B.A. degree from the Indiana University
Graduate School of Business.
Mr. Meador is on the Board of Directors of Grubb & Ellis Company, a publicly
traded commercial real estate firm. Mr. Meador was elected to the Board of
Grubb & Ellis Company in May 1998. Mr. Meador is also a director of AMLI
Commercial Properties Trust, a private real estate investment trust that owns
office and industrial buildings in the Chicago, Illinois area. Mr. Meador was
elected to the Board of AMLI Commercial Properties Trust in August 1998.
Alexander J. Darragh (age 44) joined Balcor in September 1988 and is
responsible for real estate advisory services for Balcor and American Express
Company. Mr. Darragh received masters' degrees in Urban Geography from Queen's
University and in Urban Planning from Northwestern University.
Jayne A. Kosik (age 41) joined Balcor in August 1982 and, as Chief Financial
Officer, is responsible for Balcor's financial, human resources and treasury
functions. Ms. Kosik is also a member of the board of directors of The Balcor
Company. From June 1989 until October 1996, Ms. Kosik had supervisory
responsibility for accounting functions relating to Balcor's public and private
partnerships. She is also Treasurer and a Senior Managing Director of The
Balcor Company. Ms. Kosik is a Certified Public Accountant.
<PAGE>
(d) There is no family relationship between any of the foregoing officers.
(f) None of the foregoing officers or employees are currently involved in any
material legal proceedings nor were any such proceedings terminated during the
fourth quarter of 1998.
Item 11. Executive Compensation
- -------------------------------
The Registrant has not paid and does not propose to pay any remuneration to the
executive officers and directors of the General Partner. The executive officers
receive compensation from The Balcor Company (but not from the Registrant) for
services performed for various affiliated entities, which may include services
performed for the Registrant. However, the General Partner believes that any
such compensation attributable to services performed for the Registrant is
immaterial to the Registrant. See Note 10 of Notes to Financial Statements for
information relating to transactions with affiliates.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -----------------------------------------------------------------------
(a) The following entity is the sole Limited Partner which owns beneficially
more than 5% of the outstanding Limited Partnership Interests of the
Registrant:
Name and Amount and
Address of Nature of Percent
Beneficial Beneficial of
Title of Class Owner Ownership Class
- -----------------------------------------------------------
Limited Walton Street 50,143.68 5.34%
Partnership Capital Limited
Interests Acquisition Partnership
Co. II, L.C.C. Interests
Chicago,
Illinois
Limited Beattie 27,000.43 2.87%
Partnership Place Limited
Interests Greenville, Partnership
South Carolina Interests
While Beattie Place individually owns less than 5% of the Interests, for
purposes of this Item 12, Walton Street Capital Acquisition Co. II, L.C.C. is
an affiliate of Beattie Place and, collectively, they own 8.21% of the
Interests.
(b) Balcor Equity Partners-II (principally through the Repurchase Fund) and its
officers own as a group the following Limited Partnership Interests of the
Registrant:
<PAGE>
Amount
Beneficially
Title of Class Owned Percent of Class
-------------- ------------- ----------------
Limited Partnership
Interests 24,499 Interests Approximately 3%
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 875 Limited Partnership Interests in the Partnership due exclusively to
instances in which Limited Partners abandoned title to their Limited
Partnership Interests. Balcor LP Corp. is a nominee holder only of such
Interests and has disclaimed any economic or beneficial ownership in said
Interests. All distributions of cash payable with respect to such Interests
held by Balcor LP Corp. are returned to the Partnership for distribution
to other Limited Partners in accordance with the Partnership Agreement.
(c) The Registrant is not aware of any arrangements, the operation of which may
result in a change of control of the Registrant.
Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------
(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 and Reports on Form 8-K
- -----------------------------------------
(a)
(1 & 2) See Index to Financial Statements in this Form 10-K.
(3) Exhibits:
(3) The Amended and Restated Agreement and Certificate of Limited Partnership,
previously filed as Exhibit 3 to Amendment No. 2 to the Registrant's
Registration Statement on Form S-11 dated September 20, 1984 (Registration No.
2-91810) and to Amendment No. 1 to the Registrant's Registration Statement on
Form S-11 dated January 24, 1985 (Registration No. 2-95409), are hereby
incorporated herein by reference.
(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 24, 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 Quarterly Report on Form 10-Q for the
quarter ended June 30, 1992 (Commission file No. 0-13348), are incorporated
herein by reference.
(10) Material Contracts:
(i)(a) Agreement of Sale and attachment thereto relating to the sale of Bingham
Farms Office Plaza - Phase V, Bingham Farms, Michigan, previously filed as
Exhibit (10)(iv) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997, is hereby incorporated by reference.
(i)(b) First Letter Amendment to Agreement of Sale relating to the sale of
Bingham Farms Office Plaza - Phase V, Bingham Farms, Michigan, previously filed
as Exhibit (10)(iii)(b) to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1997, is hereby incorporated by reference.
(i)(c) Second Amendment to Agreement of Sale relating to the sale of Bingham
Farms Office Plaza - Phase V, Bingham Farms, Michigan, previously filed as
Exhibit (10)(iii)(c) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, is hereby incorporated by reference.
(ii)(a) Agreement of Sale and attachment thereto relating to the sale of the
Ross Plaza Shopping Center, Federal Way, Washington, previously filed as
Exhibit (10)(iv) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, is hereby incorporated by reference.
(ii)(b) First Amendment to Agreement of Sale and Escrow Agreement relating to
the sale of the Ross Plaza Shopping Center, Federal Way, Washington, previously
filed as Exhibit (10)(iv)(b) to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997, is hereby incorporated by reference.
<PAGE>
(ii)(c) Second Amendment to Agreement of Sale and Escrow Agreement relating to
the sale of the Ross Plaza Shopping Center, Federal Way, Washington, previously
filed as Exhibit (10)(iv)(c) to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1997, is hereby incorporated by reference.
(27) Financial Data Schedule of the Registrant for 1998 is attached hereto.
(b) Reports on Form 8-K: No Reports on Form 8-K were filed 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 l934, 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/ Jayne A. Kosik
--------------------------
Jayne A. Kosik
Senior Managing Director and
Chief Financial Officer (Principal
Accounting and Financial Officer)
of Balcor Equity Partners-II,
the General Partner
Date: March 19, 1999
------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------------------- ------------------------------- ------------
President and Chief Executive
Officer (Principal Executive
Officer) of Balcor Equity
/s/ Thomas E. Meador Partners-II, the General Partner March 19, 1999
----------------- --------------
Thomas E. Meador
Senior Managing Director and Chief
Financial Officer (Principal
Accounting and Financial Officer)
of Balcor Equity Partners-II,
/s/ Jayne A. Kosik the General Partner March 19, 1999
- -------------------- --------------
Jayne A. Kosik
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants
Financial Statements:
Balance Sheets, December 31, 1998 and 1997
Statements of Partners' Capital, for the years ended December 31, 1998, 1997
and 1996
Statements of Income and Expenses, for the years ended December 31, 1998, 1997
and 1996
Statements of Cash Flows, for the years ended December 31, 1998, 1997 and 1996
Notes to Financial Statements
Financial Statement Schedules are omitted for the reason that they are
inapplicable or equivalent information has been included elsewhere herein.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Balcor Equity Pension Investors-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 Equity Pension
Investors-II Real Estate Limited Partnership (An Illinois Limited Partnership,
the "Partnership") at December 31, 1998 and 1997, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
These financial statements are the responsibility of the Partnership's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As described in Note 2 to the financial statements, the partnership agreement
provides for the dissolution of the Partnership upon the disposition of all its
real estate interests. As of December 31, 1998, the Partnership no longer has
an ownership interest in any real estate investment. Upon resolution of the
litigation described in Note 13 to the financial statements, the Partnership
intends to cease operations and dissolve.
PricewaterhouseCoopers LLP
Chicago, Illinois
March 17, 1999
<PAGE>
BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(AN ILLINOIS LIMITED PARTNERSHIP)
BALANCE SHEETS
December 31, 1998 and 1997
ASSETS
1998 1997
------------ ------------
Cash and cash equivalents $ 3,594,151 $ 4,301,091
Accounts and accrued interest receivable 9,758 159,149
------------ ------------
$ 3,603,909 $ 4,460,240
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 51,784 $ 33,835
Due to affiliates 62,112 45,302
------------ ------------
Total liabilities 113,896 79,137
------------ ------------
Commitments and contingencies
Limited Partners' capital (939,587 Interests
issued and outstanding) 4,374,325 5,160,001
General Partner's deficit (884,312) (778,898)
------------ ------------
Total partners' capital 3,490,013 4,381,103
------------ ------------
$ 3,603,909 $ 4,460,240
============ ============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
for the years ended December 31, 1998, 1997 and 1996
Partners' Capital (Deficit) Accounts
-------------------------------------------
General Limited
Total Partner Partners
------------- ------------- -------------
Balance at December 31, 1995 $ 102,441,113 $ 11,167 $ 102,429,946
Cash distributions to:
Limited Partners (A) (19,381,766) (19,381,766)
General Partner (1,401,854) (1,401,854)
Deemed distribution to
Limited Partners (B) (79,768) (79,768)
Net income for the year
ended December 31, 1996 19,499,123 962,253 18,536,870
------------- ------------- -------------
Balance at December 31, 1996 101,076,848 (428,434) 101,505,282
Cash distributions to:
Limited Partners (A) (104,928,196) (104,928,196)
General Partner (350,464) (350,464)
Net income for the year
ended December 31, 1997 8,582,915 8,582,915
------------- ------------- -------------
Balance at December 31, 1997 4,381,103 (778,898) 5,160,001
Cash distributions to:
Limited Partners (A) (785,676) (785,676)
Net loss for the year
ended December 31, 1998 (105,414) (105,414)
------------- ------------- -------------
Balance at December 31, 1998 $ 3,490,013 $ (884,312)$ 4,374,325
============= ============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
for the years ended December 31, 1998, 1997 and 1996
(Continued)
(A) Summary of cash distributions paid per Interest:
Taxable 1998 1997 1996
------------- ------------- -------------
First Quarter None $ 2.60 $ 2.60
Second Quarter None None 2.60
Third Quarter None None 2.60
Fourth Quarter None None 2.60
Tax-Exempt 1998 1997 1996
------------- ------------- -------------
First Quarter $ 0.95 $ 73.46 $ 3.46
Second Quarter None 27.00 3.46
Third Quarter None None 3.46
Fourth Quarter None 26.06 11.64
(B) This amount represents a state withholding tax paid on behalf of the
Limited Partners relating to the gain on the sale of Spalding Bridge
Apartments.
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF INCOME AND EXPENSES
for the years ended December 31, 1998, 1997 and 1996
1998 1997 1996
------------- ------------- -------------
Income:
Rental income $ 2,378,168 $ 18,293,214
Service income 391,515 1,966,035
Interest on short-term
investments $ 210,379 868,685 1,268,523
Participation in income of
joint venture with an 2,290,059
affiliate
Settlement income 117,892
Other income 10,290
------------- ------------- -------------
Total income 328,271 3,648,658 23,817,831
------------- ------------- -------------
Expenses:
Depreciation 731,235 3,261,148
Amortization of deferred
expenses 591,434 578,114
Property operating 1,381,757 7,633,003
Real estate taxes 253,865 2,193,939
Property management fees 112,878 685,822
Administrative 433,685 580,486 1,095,097
Provision for investment
property writedown 968,000
------------- ------------- -------------
Total expenses 433,685 3,651,655 16,415,123
------------- ------------- -------------
(Loss) income before net gain
on sales of properties and
affiliates' participation in
joint ventures (105,414) (2,997) 7,402,708
Net gain on sales of
properties 8,585,912 15,598,117
Affiliates' participation in
income from joint ventures (3,501,702)
------------- ------------- -------------
Net (loss) income $ (105,414)$ 8,582,915 $ 19,499,123
============= ============= =============
Net (loss) income allocated
to General Partner $ (105,414) None $ 962,253
============= ============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF INCOME AND EXPENSES
for the years ended December 31, 1998, 1997 and 1996
(Continued)
1998 1997 1996
------------- ------------- -------------
Net income allocated to
Limited Partners None $ 8,582,915 $ 18,536,870
============= ============= =============
Net income per Limited
Partnership Interest (939,587
issued and outstanding) -
Basic and Diluted None $ 9.13 $ 19.73
============= ============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1998, 1997 and 1996
1998 1997 1996
------------- ------------- -------------
Operating activities:
Net (loss) income $ (105,414)$ 8,582,915 $ 19,499,123
Adjustments to reconcile net
(loss) income to net cash
provided by operating
activities:
Net gain on sales of
properties (8,585,912) (15,598,117)
Affiliates' participation
in income from joint
ventures 3,501,702
Participation in income
of joint venture
with an affiliate (2,290,059)
Depreciation of properties 731,235 3,261,148
Amortization of deferred
expenses 591,434 578,114
Provision for investment
property writedown 968,000
Payment of leasing
commissions (145,762) (283,693)
Net change in:
Accounts and accrued
interest receivable 149,391 339,630 39,262
Prepaid expenses 139,249 73,992
Accounts payable 17,949 (368,382) 120,203
Due to affiliates 16,810 (72,300) 84,024
Accrued real estate
taxes (448,030)
Security deposits (246,359) (221,241)
------------- ------------- -------------
Net cash provided by
operating activities 78,736 965,748 9,284,428
------------- ------------- -------------
Investing activities:
Proceeds from sales of
properties 45,731,500 71,502,500
Payment of selling costs (1,677,041) (1,984,090)
Capital contributions to joint
venture with an affiliate (54,938)
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1998, 1997 and 1996
(Continued)
1998 1997 1996
------------- ------------- -------------
Distributions from joint
venture with an affiliate 3,681,856
Improvements and additions
to properties (197,950) (920,158)
------------- -------------
Net cash provided by
investing activities 43,856,509 72,225,170
------------- -------------
Financing activities:
Distributions to
Limited Partners (785,676) (104,928,196) (19,381,766)
Distributions to General
Partner (350,464) (1,401,854)
Deemed distribution
to Limited Partners (79,768)
Capital contribution from joint
venture partner - affiliate 39,705
Distributions to joint venture
partners - affiliates (1,728,022) (18,796,692)
------------- ------------- -------------
Net cash used in financing
activities (785,676) (106,966,977) (39,660,080)
------------- ------------- -------------
Net change in cash and cash
equivalents (706,940) (62,144,720) 41,849,518
Cash and cash equivalents at
beginning of year 4,301,091 66,445,811 24,596,293
------------- ------------- -------------
Cash and cash equivalents at
end of year $ 3,594,151 $ 4,301,091 $ 66,445,811
============= ============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Nature of the Partnership's Business:
Balcor Equity Pension Investors-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 August
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 lawsuit discussed in Note 13 of
Notes to 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 straight-line and accelerated
methods. Rates used in the determination of depreciation were based upon the
following estimated useful lives:
Years
-----
Buildings and improvements 20 to 35
Furniture and fixtures 5
Depreciation expense for tenant improvements was computed using a straight-line
method over the term of the lease.
<PAGE>
Maintenance and repairs were charged to expense when incurred. Expenditures for
improvements were charged to the related asset account.
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. In the event the General Partner determined an
impairment in value had occurred, and the carrying amount of the real estate
asset would not be recovered, a provision was recorded to reduce the carrying
basis of the property to its estimated fair value. The General Partner
considered the methods referred to above to result in a reasonable measurement
of a property's fair value, unless other factors affecting the property's value
indicated otherwise.
(d) Deferred expenses consisted of leasing commissions which were amortized
over the life of each respective lease. Upon sale of the property, the
remaining balance was written off.
(e) Revenue was recognized on an accrual basis in accordance with generally
accepted accounting principles. Income from operating leases with significant
abatements and/or scheduled rent increases was recognized on a straight line
basis over the respective lease term. Service income included reimbursements
for operating costs such as real estate taxes, maintenance and insurance and
was recognized as revenue in the period the applicable costs were incurred.
(f) 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.
(g) Investment in joint venture with an affiliate represented the Partnership's
22.91% interest, under the equity method of accounting, in a joint venture with
an affiliated partnership. Under the equity method of accounting, the
Partnership recorded its initial investment at cost and adjusted its investment
account for additional capital contributions, distributions and its share of
joint venture income or loss.
(h) Cash and cash equivalents include all unrestricted highly liquid
investments with an original maturity of three months or less. Cash is held or
invested in one financial institution.
(i) 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.
<PAGE>
(j) For financial statement purposes, prior to 1997, the partners were
allocated income and losses in accordance with the provisions in the
Partnership Agreement. In order for the capital account balances to more
accurately reflect the partners' remaining economic interests in the
Partnership, the income (loss) allocations have been adjusted.
(k) 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 per Limited Partnership
Interest.
(l) A reclassification has been made to the previously reported 1997 financial
statements in order to provide comparability with the 1998 statements. This
reclassification has not changed the 1997 results.
(m) Certain reclassifications of prior years information were made to conform
to the 1998 presentation.
4. Partnership Agreement:
The Partnership was organized on May 29, 1984. The Partnership Agreement
provided for the admission of Limited Partners through the sale of up to
1,000,000 Limited Partnership Interests at $250 per Interest, 939,587 of which
were sold on or prior to February 20, 1985, the termination date of the
offering.
The Partnership Agreement provides for different allocations of profits and
losses and cash distributions to Limited Partners depending on whether the
investor originally acquiring the Interest was a taxable or tax-exempt entity.
Pursuant to the Partnership Agreement, "Operating Income" of the Partnership is
allocated 10% to the General Partner and 90% to the Limited Partners; however,
certain components are specially allocated as described in the Partnership
Agreement. "Operating Losses" and certain other components are allocated 1% to
the General Partner and 99% to the Limited Partners. For financial statement
purposes, prior to 1997, the partners were allocated income and losses in
accordance with the provisions in the Partnership Agreement. In order for the
capital account balances to more accurately reflect the partners' remaining
economic interests in the Partnership, the income (loss) allocations have been
adjusted.
"Net Cash Receipts" available for distribution were distributed as follows: 90%
to Limited Partners, 7.5% to the General Partner as its distributive share from
Partnership operations and 2.5% of such "Net Cash Receipts" was paid to the
General Partner for allocation to the Repurchase Fund.
At the sole discretion of the General Partner and subject to certain
limitations as set forth in the Partnership Agreement, amounts placed in the
Repurchase Fund were available to repurchase Interests from Limited Partners.
Distributions of "Net Cash Receipts" and "Net Cash Proceeds" pertaining to such
repurchased Interests were paid to the Repurchase Fund and were utilized to
<PAGE>
repurchase additional Interests. In February 1997, the Partnership discontinued
the repurchase of Interests from Limited Partners. An amount not to exceed the
dollars originally allocated to the Repurchase Fund will be returned by the
Repurchase Fund to the Partnership at liquidation, which will be accounted for
as a capital contribution from the General Partner. As of December 31, 1998,
there were 24,071 Interests and cash of $2,896,122 in the Repurchase Fund.
The Partnership has disposed of all of its remaining real property investments.
The "Net Cash Proceeds" resulting therefrom, which were available for
distribution, were distributed to the Tax-exempt Limited Partners in accordance
with the Partnership Agreement. Since the required subordination levels were
not met, the General Partner has not received any distributions of Net Cash
Proceeds during the lifetime of the Partnership.
5. Investment Property Writedown:
In 1996, the Partnership determined that an impairment had occurred to the
asset value of the Ammendale Technology Park - Phase I office building located
in Prince George's County, Maryland. During 1996, the property was written down
to its current sales price, less estimated closing costs, and a $968,000
provision for investment property writedown was recognized.
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 3% to 6% of gross operating receipts.
7. Affiliate's Participation in Joint Ventures:
The 1275 K Street Office Building and the Westech 360 Office Buildings were
owned by the Partnership and an affiliated partnership. Both of the properties
were sold in 1996. See Note 11 of Notes to Financial Statements for additional
information regarding the sales. For the 1275 K Street Office Building, profits
and losses were allocated approximately 61% to the Partnership and 39% to the
affiliate. For the Westech 360 Office Buildings, profits and losses were
allocated approximately 57% to the Partnership and 43% to the affiliate. All
assets, liabilities, income and expenses of the joint ventures are included in
the financial statements of the Partnership with the appropriate adjustment of
profit or loss for the affiliate's participation. For financial statement
purposes, the Partnership recognized a loss of $5,028,903 in connection with
the sale of the 1275 K Street office building, of which $1,924,848 was the
affiliate's share. In addition, the Partnership recognized a gain of $9,904,921
in connection with the sale of the Westech 360 Office Buildings, of which
$4,288,415 was the affiliate's share. The joint venture made net distributions
of $1,688,317 and $18,796,692 to the partners during 1997 and 1996,
respectively.
Pursuant to the sale agreement for the 1275 K Street Office Building,
$2,287,500 of the sale proceeds was retained by the Partnership and was
unavailable for distribution until September 1997, at which time the funds were
released in full. The affiliate's share of these proceeds was $903,105.
<PAGE>
Pursuant to the sale agreement for the Westech 360 Office Buildings, $1,395,000
of the sale proceeds was retained by the Partnership and was unavailable for
distribution until September 1997, at which time the funds were released in
full. The affiliate's share of these proceeds was $604,035.
8. Investment in Joint Venture with an Affiliate:
The Partnership owned approximately a 23% joint venture interest in the Pacific
Center Office Buildings. The joint venture partner was an affiliate with
investment objectives similar to those of the Partnership. In December 1996,
the joint venture sold the property in an all cash sale for $15,950,000. From
the proceeds of the sale, the joint venture paid $431,045 in selling costs.
For financial statement purposes, the joint venture recognized a gain of
$8,881,597 from the sale of this property, of which $2,034,774 is the
Partnership's share.
During 1996, the Partnership received net distributions from the joint venture
of $3,626,918.
The following unaudited financial information has been summarized from the
December 31, 1996 financial statements of the joint venture:
Total income $2,448,000
Loss before gain on sale (1,847,000)
Gain on sale 8,882,000
Net income 7,035,000
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 (GAAP), 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
$113,374 less than the tax income for the same period.
<PAGE>
10. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates are:
Year Ended Year Ended Year Ended
12/31/98 12/31/97 12/31/96
-------------- -------------- --------------
Paid Payable Paid Payable Paid Payable
------ ------- ------ ------- ------ -------
Reimbursement of expenses
to the General Partner,
at cost:
Accounting $28,515 $17,194 $50,775 $9,819 $23,466 $16,077
Data processing 2,328 872 6,518 1,456 3,631 None
Legal 16,592 10,674 16,479 3,028 12,513 8,573
Portfolio management 54,793 33,372 169,414 30,474 129,642 88,822
Other 525 None 8,889 525 6,028 4,130
Prior to May 1995, the Partnership participated in an insurance deductible
program with other affiliated partnerships in which the program paid claims up
to the amount of the deductible under the master insurance policy for its
properties. The program was administered by an affiliate of the General Partner
who received no fee for administering the program. However, the General Partner
was reimbursed for program expenses. The Partnership paid premiums to the
deductible insurance program relating to claims for periods prior to May 1,
1995 of $28,112 for 1996.
11. Property Sales:
(a) In February 1997, the Partnership sold the 100 Ashford Center North office
building in an all cash sale for $17,746,000. From the proceeds of the sale,
the Partnership paid $392,666 in selling costs. The basis of the property was
$10,604,363, which is net of accumulated depreciation of $4,755,475. For
financial statement purposes, the Partnership recognized a gain of $6,748,971
from the sale of the property.
(b) In February 1997, the Partnership sold the Ammendale Technology Park -
Phase I office building in an all cash sale for $7,732,000. From the proceeds
of the sale, the Partnership paid $420,013 in selling costs. The basis of the
property was $7,390,935, which is net of accumulated depreciation of $715,809.
For financial statement purposes, the Partnership recognized a loss of $78,948
from the sale of the property.
(c) In July 1997, the Partnership sold the Bingham Farms Office Plaza - Phase V
in an all cash sale for $11,200,000. From the proceeds of the sale, the
Partnership paid $350,025 in selling costs. The basis of the property was
$9,646,119, which is net of accumulated depreciation of $6,681,081. For
financial statement purposes, the Partnership recognized a gain of $1,203,856
from the sale of the property.
<PAGE>
(d) In August 1997, the Partnership sold the Ross Plaza Shopping Center in an
all cash sale for $9,400,000. In connection with the sale, the purchaser
received a credit of $346,500 to remedy certain environmental issues at the
property. The General Partner believes that the Partnership will have no
further liability relating to the environmental issues at the property. From
the proceeds of the sale, the Partnership paid $514,337 in selling costs. The
basis of the property was $7,827,130, which is net of accumulated depreciation
of $6,719,935. For financial statement purposes, the Partnership recognized a
gain of $712,033 from the sale of the property.
(e) In September 1996, the Partnership sold the Spalding Bridge Apartments in
an all cash sale for $9,872,500. From the proceeds of the sale, the
Partnership paid $267,092 in selling costs. In addition, the Partnership paid
a state withholding tax of $79,768 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
$6,243,028, which is net of accumulated depreciation of $3,831,256. For
financial statement purposes, the Partnership recognized a gain of $3,362,380
from the sale of the property.
(f) In December 1996, the Partnership sold the Denver Centerpoint Office
Buildings in an all cash sale for $15,000,000. From the proceeds of the sale,
the Partnership paid $327,876 in selling costs. The basis of the property was
$7,312,405, which is net of accumulated depreciation of $6,198,430. For
financial statement purposes, the Partnership recognized a gain of $7,359,719
from the sale of the property.
(g) The 1275 K Street Office Building 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 approximately 61% and 39%
respectively. In December 1996, the joint venture sold the property in an all
cash sale for $28,300,000. From the proceeds of the sale, the joint venture
paid $911,470 in selling costs. The basis of the property was $32,417,433,
which is net of accumulated depreciation of $14,555,713. For financial
statement purposes, the Partnership recognized a loss of $5,028,903 from the
sale of the property, of which $1,924,848 was the minority joint venture
partner's share.
(h) The Westech 360 Office Buildings was owned by a joint venture consisting of
the Partnership and an affiliate. The Partnership and the affiliate held
participating percentages in the joint venture of approximately 57% and 43%,
respectively. In December 1996, the joint venture sold the property in an all
cash sale for $18,330,000. From the proceeds of the sale, the joint venture
paid $477,652 in selling costs. The basis of the property was $7,947,427, which
is net of accumulated depreciation of $2,938,756. For financial statement
purposes, the Partnership recognized a gain of $9,904,921 from the sale of the
property, of which $4,288,415 was the minority joint venture partner's share.
12. Settlement Income:
The Pacific Center Office Buildings, which were owned by a joint venture
consisting of the Partnership and an affiliate, were sold during December 1996.
During April 1998, the Partnership received $117,892 as its share of the
settlement related to a dispute with a former tenant at the property. This
amount was recognized as settlement income for financial statement purposes.
<PAGE>
13. Contingency:
The Partnership is currently involved in a lawsuit, Dee vs. Walton Street
Capital Acquisition II, LLC, whereby the Partnership, the General Partner and
certain third parties have been named as defendants seeking damages relating to
tender offers to purchase interests in the Partnership and nine affiliated
partnerships initiated by the third party defendants in 1996. The defendants
continue to vigorously contest this action. The action has been dismissed with
prejudice, which dismissal was affirmed by the Illinois Appellate Court.
Plaintiffs have filed a further appeal to the Illinois Supreme Court. It is not
determinable at this time how the outcome of this action will impact the
remaining cash reserves of the Partnership. The Partnership believes that it
has meritorious defenses to contest the claims.
<PAGE>
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<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 3594
<SECURITIES> 0
<RECEIVABLES> 10
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3604
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3604
<CURRENT-LIABILITIES> 114
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 3490
<TOTAL-LIABILITY-AND-EQUITY> 3604
<SALES> 0
<TOTAL-REVENUES> 328
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 434
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (105)
<INCOME-TAX> 0
<INCOME-CONTINUING> (105)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (105)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
