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, 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
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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
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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, 1999 and December 31, 1998
(Unaudited)
ASSETS
1999 1998
------------ -------------
Cash and cash equivalents $ 3,514,545 $ 3,594,151
Accrued interest receivable 18,892 9,758
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$ 3,533,437 $ 3,603,909
============ =============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 49,858 $ 51,784
Due to affiliates 67,688 62,112
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Total liabilities 117,546 113,896
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Commitments and contingencies
Limited Partners' capital (939,587
Interests issued and outstanding) 4,374,325 4,374,325
General Partner's deficit (958,434) (884,312)
------------ -------------
Total partners' capital 3,415,891 3,490,013
------------ -------------
$ 3,533,437 $ 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 six months ended June 30, 1999 and 1998
(Unaudited)
1999 1998
------------ -------------
Income:
Interest on short-term investments $ 89,887 $ 108,644
Other income 117,892
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Total income 89,887 226,536
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Expenses:
Administrative 164,009 243,867
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Total expenses 164,009 243,867
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Net loss $ (74,122) $ (17,331)
============ =============
Net loss allocated to General Partner $ (74,122) $ (17,331)
============ =============
Net loss allocated to Limited Partners None None
============ =============
Net loss per Limited Partnership Interest
(939,587 issued and outstanding)
- Basic and Diluted None 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 June 30, 1999 and 1998
(Unaudited)
1999 1998
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Income:
Interest on short-term investments $ 43,570 $ 49,460
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Total income 43,570 49,460
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Expenses:
Administrative 99,102 95,867
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Total expenses 99,102 95,867
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Net loss $ (55,532) $ (46,407)
============ =============
Net loss allocated to General Partner $ (55,532) $ (17,331)
============ =============
Net loss allocated to Limited
Partners None $ (29,076)
============ =============
Net loss per Limited Partnership
Interest (939,587 issued and
outstanding) - Basic and Diluted None $ (0.03)
============ =============
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 CASH FLOWS
for the six months ended June 30, 1999 and 1998
(Unaudited)
1999 1998
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Operating activities:
Net loss $ (74,122) $ (17,331)
Adjustments to reconcile net loss
to net cash (used in) or provided
by operating activities:
Accounts and accrued interest
receivable (9,134) 151,929
Accounts payable (1,926) (21,010)
Due to affiliates 5,576 30,352
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Net cash (used in) or provided
by operating activities (79,606) 143,940
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Financing activities:
Distribution to Limited Partners (785,676)
-------------
Cash used in financing activities (785,676)
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Net change in cash and cash equivalents (79,606) (641,736)
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 $ 3,514,545 $ 3,659,355
============ =============
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 six months and quarter
ended June 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
Avenue litigation was filed in May 1999. See Note 4 of Notes to Financial
Statements for additional information regarding the Madison Avenue litigation.
Despite the existence of the Madison Avenue litigation, the Partnership
currently plans to dissolve in December 1999 and distribute remaining cash
reserves 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 Avenue
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
six months and quarter ended June 30, 1999 are:
Paid
-------------------------
Six Months Quarter Payable
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Reimbursement of expenses to
the General Partner, at cost $ 18,897 $ 9,075 $ 67,688
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. The
defendants intend to vigorously contest this action. 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.
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 June 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
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Summary of Operations
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The operations of the Partnership in 1999 and 1998 consisted 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 June 30, 1999,
the Partnership's net loss increased during the quarter ended June 30, 1999 as
compared to the same period in 1998. In addition, during the first quarter of
1998, the Partnership recognized other income of $117,892 related to a
settlement of a dispute with a former tenant at the Pacific Center office
buildings and higher administrative expenses. These were the primary reasons
the Partnership's net loss increased during the six months ended June 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 six months and quarters ended June 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 when 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. This
amount was accrued for and recognized as other income for financial statement
purposes during the first quarter of 1998.
Primarily due to a decrease in accounting, portfolio management, and investor
processing fees, administrative expenses decreased during the six months ended
June 30, 1999 as compared to the same period in 1998. During the quarter ended
June 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 June 30, 1999 as compared to the same period in 1998.
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership decreased by approximately $80,000 as of
June 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
Avenue litigation, described in Part II, Item 1, of this report, was filed in
May 1999. Despite the existence of the Madison Avenue litigation, the
Partnership currently plans to dissolve in December 1999 and distribute
remaining cash reserves 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 Avenue 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.
Limited Partners should contact the Partnership if the suspension of transfers
causes any extraordinary hardships. 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 June 30, 1999, 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
mortgage loans 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 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 these vendors. 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,
these surveys and discussions with the key vendors performing services for the
Partnership indicate that the key vendors are substantially Year 2000 compliant
as of June 30, 1999. The Partnership will continue to monitor the Year 2000
compliance of its key vendors during the third 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 which will be updated by September 30,
1999 based on the results of further surveys, discussions and testing of
systems, where applicable. 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
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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. 99CH08972). The Partnership, twenty-one additional
limited partnerships which were sponsored by The Balcor Company (together with
the Partnership, the "Affiliated Partnerships"), The Balcor Company, other
affiliated entities and one individual are named defendants in this action.
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
briefing schedule on this motion has not yet been set.
The defendants intend to vigorously contest this action. No class has been
certified as of this date. The Partnership 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 Partnership.
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 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.
(10) Material Contracts:
(i)(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.
(i)(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.
(i)(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 the six months ending June
30, 1999, is attached hereto.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter
ended June 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: August 10, 1999
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