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
- -----
EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1999
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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
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Illinois 36-3314331
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Waukegan Road
Bannockburn, Illinois 60015
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 267-1600
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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
September 30, 1999 and December 31, 1998
(Unaudited)
ASSETS
1999 1998
------------ -------------
Cash and cash equivalents $ 3,499,319 $ 3,594,151
Accrued interest receivable 13,221 9,758
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$ 3,512,540 $ 3,603,909
============ =============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 50,049 $ 51,784
Due to affiliates 75,409 62,112
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Total liabilities 125,458 113,896
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Commitments and contingencies
Limited Partners' capital (939,587
Interests issued and outstanding) 4,352,881 4,374,325
General Partner's deficit (965,799) (884,312)
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Total partners' capital 3,387,082 3,490,013
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$ 3,512,540 $ 3,603,909
============ =============
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 nine months ended September 30, 1999 and 1998
(Unaudited)
1999 1998
------------ -------------
Income:
Interest on short-term investments $ 130,086 $ 162,034
Other income 117,892
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Total income 130,086 279,926
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Expenses:
Administrative 233,017 305,088
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Total expenses 233,017 305,088
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Net loss $ (102,931) $ (25,162)
============ =============
Net loss allocated to General Partner $ (81,487) $ (25,162)
============ =============
Net loss allocated to Limited Partners $ (21,444) None
============ =============
Net loss per Limited Partnership Interest
(939,587 issued and outstanding)
- Basic and Diluted $ (0.02) None
============ =============
Distribution to Limited Partners None $ 785,676
============ =============
Distribution per Limited Partnership
Interest:
Taxable None None
============ =============
Tax-exempt None $ 0.95
============ =============
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 September 30, 1999 and 1998
(Unaudited)
1999 1998
------------ -------------
Income:
Interest on short-term investments $ 40,199 $ 53,390
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Total income 40,199 53,390
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Expenses:
Administrative 69,008 61,221
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Total expenses 69,008 61,221
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Net loss $ (28,809) $ (7,831)
============ =============
Net loss allocated to General Partner $ (7,365) $ (7,831)
============ =============
Net loss allocated to Limited Partners $ (21,444) None
============ =============
Net loss per Limited Partnership Interest
(939,587 issued and outstanding)
- Basic and Diluted $ (0.02) None
============ =============
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 nine months ended September 30, 1999 and 1998
(Unaudited)
1999 1998
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Operating activities:
Net loss $ (102,931) $ (25,162)
Adjustments to reconcile net loss
to net cash (used in) or provided by
operating activities:
Net change in:
Accounts and accrued interest
receivable (3,463) 142,275
Accounts payable (1,735) (16,244)
Due to affiliates 13,297 23,265
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Net cash (used in) or provided by
operating activities (94,832) 124,134
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Financing activity:
Distribution to Limited Partners (785,676)
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Cash used in financing activity (785,676)
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Net change in cash and cash equivalents (94,832) (661,542)
Cash and cash equivalents at beginning
of period 3,594,151 4,301,091
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Cash and cash equivalents at end of period $ 3,499,319 $ 3,639,549
============ =============
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:
In the opinion of management, all adjustments necessary for a fair presentation
have been made to the accompanying statements for the nine months and quarter
ended September 30, 1999, and all such adjustments are of a normal and
recurring nature.
2. Partnership Termination:
The partnership agreement provides for the dissolution of the Partnership upon
the occurrence of certain events. The Partnership sold its final real estate
investment in August 1997. The Partnership has retained a portion of the cash
from property sales to satisfy obligations of the Partnership as well as to
establish a reserve for contingencies. As previously reported, the Sandra Dee
case was dismissed by the Illinois Supreme Court in April 1999. The Madison
Partnership litigation was filed in May 1999. The second Sandra Dee case was
filed June 1, 1999 and served on August 16, 1999. See Note 6 of Notes to
Financial Statements for additional information regarding the Madison
Partnership/Dee litigation. Despite the existence of the Madison
Partnership/Dee litigation, the Partnership currently plans to dissolve in
December 1999 and distribute remaining cash reserves (including any allocable
share of the Repurchase Fund) to the partners in accordance with the
partnership agreement. In the event that a new contingency (such as a lawsuit)
arises during 1999, the Partnership may not be dissolved and may continue in
existence until such new contingency is resolved. The Partnership does not
consider the Madison Partnership/Dee case to be a matter that would preclude
the dissolution of the Partnership in 1999.
3. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates during the
nine months and quarter ended September 30, 1999 are:
Paid
------------------------
Nine Months Quarter Payable
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Reimbursement of expenses to
the General Partner, at cost $ 22,546 $ 3,649 $ 75,409
4. Contingency:
In May 1999, a lawsuit was filed against the Partnership, Madison Partnership
Liquidity Investors XX, et al. vs. The Balcor Company, et al. whereby the
Partnership and certain affiliates have been named as defendants. The
plaintiffs are entities that initiated tender offers to purchase and, in fact,
purchased units in eleven affiliated partnerships.
The complaint alleges breach of fiduciary duties and breach of contract under
the partnership agreement and seeks the winding up of the affairs of the
Partnership, the establishment of a liquidating trust, the appointment of an
independent trustee for the trust and the distribution of a portion of the cash
reserves to limited partners. On June 1, 1999, a second lawsuit was filed and
was served on August 16, 1999, Sandra Dee vs. The Balcor Company, et al. The
Dee complaint is virtually identical to the Madison Partnership complaint and
on September 20, 1999 was consolidated into the Madison Partnership case. The
defendants intend to vigorously contest these actions. The Partnership believes
that it has meritorious defenses to contest the claims. It is not determinable
at this time how the outcome of these actions will impact the remaining cash
reserves of the Partnership.
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. As of September 30, 1999, the Partnership has no loans
outstanding or properties remaining in its portfolio.
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 1998 for a more complete understanding of
the Partnership's financial position.
Operations
- ----------
Summary of Operations
- ---------------------
The operations of the Partnership in 1999 and 1998 consisted primarily of
administrative expenses which were partially offset by interest income earned
on short-term investments. As a result of higher administrative expenses and
lower interest income earned on short-term investments during the quarter ended
September 30, 1999, the Partnership's net loss increased during the quarter
ended September 30, 1999 as compared to the same period in 1998. During the
first quarter of 1998, the Partnership recognized other income of $117,892
related to its share of a settlement of a dispute with a former tenant at the
Pacific Center office buildings. This was the primary reason the Partnership's
net loss increased during the nine months ended September 30, 1999 as compared
to the same period in 1998. Further discussion of the Partnership's operations
is summarized below.
1999 Compared to 1998
- ---------------------
Unless otherwise noted, discussions of fluctuations between 1999 and 1998 refer
to both the nine months and quarters ended September 30, 1999 and 1998.
As a result of lower interest rates in 1999 and lower average cash balances due
to a distribution to Limited Partners in April 1998, interest income on
short-term investments decreased during 1999 as compared to 1998.
The Pacific Center office buildings, which were owned by a joint venture
consisting of the Partnership and an affiliate, were sold in 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.
Primarily due to a decrease in accounting, portfolio management, and investor
processing fees, administrative expenses decreased during the nine months ended
September 30, 1999 as compared to the same period in 1998. During the quarter
ended September 30, 1999, the Partnership recognized higher legal expenses
related to a class action lawsuit which resulted in an increase in
administrative expenses during the quarter ended September 30, 1999 as compared
to the same period in 1998.
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership decreased by approximately $95,000 as of
September 30, 1999 when compared to December 31, 1998 due to cash used in
operating activities for the payment of administrative expenses, which was
partially offset by interest income earned on short-term investments.
The partnership agreement provides for the dissolution of the Partnership upon
the occurrence of certain events. The Partnership sold its final real estate
investment in August 1997. The Partnership has retained a portion of the cash
from property sales to satisfy obligations of the Partnership as well as to
establish a reserve for contingencies. As previously reported, the Sandra Dee
case was dismissed by the Illinois Supreme Court in April 1999. The Madison
Partnership and the new Sandra Dee litigation, described in Part II, Item 1, of
this report, were filed in May 1999 and June 1999, respectively. Despite the
existence of the Madison Partnership/Dee litigation, the Partnership currently
plans to dissolve in December 1999 and distribute remaining cash reserves
(including any allocable share of the Repurchase Fund) to the partners in
accordance with the partnership agreement. In the event that a new contingency
(such as a lawsuit) arises during 1999, the Partnership may not be dissolved
and may continue in existence until such new contingency is resolved. The
Partnership does not consider the Madison Partnership/Dee case to be a matter
that would preclude the dissolution of the Partnership in 1999. As a result of
the pending dissolution of the Partnership, the general partner has suspended
transfer of limited partnership interests in the Partnership. Certain transfers
which are not for value (such as death, divorce, change of custodian or other
estate planning) will continue to be permitted. In the event that dissolution
of the Partnership does not occur during 1999, the Partnership will allow
transfers of limited partnership interests to occur commencing in January 2000.
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. 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 1997, the Partnership discontinued the repurchase of Interests from Limited
Partners. As of September 30, 1999, there was cash of $2,896,122 in the
Repurchase Fund.
The Partnership sold all of its remaining real property investments and
mortgage loans and distributed a majority of the proceeds from these sales to
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 has involved soliciting information from these vendors through the use
of surveys, follow-up discussions and review of data where needed. The
Partnership has received the surveys from each of these vendors. While the
Partnership cannot guarantee Year 2000 compliance by its key vendors, and is
relying on statements from these vendors without independent verification,
these surveys, testing of systems, where applicable and discussions with the
key vendors performing services for the Partnership indicate that the key
vendors are substantially Year 2000 compliant as of September 30, 1999. The
Partnership will continue to monitor the Year 2000 compliance of its key
vendors during the fourth quarter of 1999. In addition, the Partnership has
developed a contingency plan in the event of non-compliance by these key
vendors in the Year 2000. 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.
BALCOR EQUITY PENSION INVESTORS-II
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- ------------------------
Madison Partnership Liquidity Investors XX, et al. vs. The Balcor
- ----------------------------------------------------------------
Company, et al.
- ---------------
On May 7, 1999, a proposed class action complaint was filed, and on May 13,
1999 was served on the defendants, Madison Partnership Liquidity Investors XX,
et al. vs. The Balcor Company, et al. (Circuit Court, Chancery Division, Cook
County, Illinois, Docket No. 99CH 06972). The general partner of the
Partnership, the general partners of twenty-one additional limited partnerships
which were sponsored by The Balcor Company, The Balcor Company and one
individual are named as defendants in this action. The Partnership and the
twenty-one other limited partnerships are referred to herein as the "Affiliated
Partnerships". Plaintiffs are entities that initiated tender offers to purchase
units and, in fact, purchased units in eleven of the Affiliated Partnerships.
The complaint alleges breach of fiduciary duties and breach of contract under
the partnership agreements for each of the Affiliated Partnerships. The
complaint seeks the winding up of the affairs of the Affiliated Partnerships,
the establishment of a liquidating trust for each of the Affiliated
Partnerships until a resolution of all contingencies occurs, the appointment of
an independent trustee for each such liquidating trust and the distribution of
a portion of the cash reserves to limited partners. The complaint also seeks
compensatory damages, punitive and exemplary damages, and costs and expenses in
pursuing the litigation. On July 14, 1999, the defendants filed a Motion to
Dismiss the complaint. A hearing date on the motion has not yet been set. On
September 20, 1999 the Sandra Dee case described below was consolidated with
this case. Future reports to investors will report only the consolidated case.
The defendants intend to vigorously contest this action. No class has been
certified as of this date. The Partnership 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
Partnership.
Sandra Dee vs. The Balcor Company, et al.
- -----------------------------------------
On June 1, 1999, a proposed class action complaint was filed, and on August 16,
1999 was served on the defendants, Sandra Dee vs. The Balcor Company, et al.
(Circuit Court, Chancery Division, Cook County, Illinois, Docket No. 99CH
08123). The general partner of the Partnership, the general partners of
twenty-one additional limited partnerships which were sponsored by The Balcor
Company, The Balcor Company and one individual are named as defendants in this
action. The Partnership and the twenty-one other limited partnerships are
referred to herein as the "Affiliated Partnerships". This complaint is
identical in all material respects to the Madison Partnership Liquidity
Investors XX, et al. vs. The Balcor Company et al. complaint filed in May 1999.
The complaint alleges breach of fiduciary duties and breach of contract under
the partnership agreements for each of the Affiliated Partnerships. The
complaint seeks the winding up of the affairs of the Affiliated Partnerships,
the establishment of a liquidating trust for each of the Affiliated
Partnerships until a resolution of all contingencies occurs, the appointment of
an independent trustee for each such liquidating trust and the distribution of
a portion of the cash reserves to limited partners. The complaint also seeks
compensatory damages, punitive and exemplary damages, and costs and expenses in
pursuing the litigation. The defendants filed on September 15, 1999 a motion
to consolidate this case with the Madison Partnership case. On September 20,
1999, the motion was granted and this case was consolidated with the Madison
Partnership case. Future reports to investors will report only the consolidated
case. On September 15, 1999, the defendants also filed a Motion to Dismiss the
complaint.
The defendants intend to vigorously contest this action. No class has been
certified as of this date. The defendants believe that they have 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
Partnership.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(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 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 Current Report on Form 10-Q for the
quarter ended June 30, 1992 (Commission File No. 0-13348), are incorporated
herein by reference.
(27) Financial Data Schedule of the Registrant for the nine months ending
September 30, 1999, is attached hereto.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter
ended September 30, 1999.
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
-------------------
Thomas E. Meador
President and Chief Executive Officer
(Principal Executive Officer) of Balcor
Equity Partners-II, the General Partner
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:November 4, 1999
----------------
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