UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-14353
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BALCOR REALTY INVESTORS 85-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
Illinois 36-3244978
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Waukegan Rd.
Bannockburn, IL 60015
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 267-1600
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
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(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
<PAGE>
PART I
Item 1. Business
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Balcor Realty Investors 85-Series I A Real Estate Limited Partnership (the
"Registrant") is a limited partnership formed in 1983 under the laws of the
State of Illinois. The Registrant raised $82,697,000 from sales of Limited
Partnership Interests. The Registrant has retained cash reserves from the sale
of its real estate investments for contingencies which exist or may arise. The
Registrant's operations currently consist of interest income earned on
short-term investments and the payment of administrative expenses.
The Registrant utilized the net offering proceeds to acquire ten real property
investments and minority joint venture interests in three additional properties
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 September
1997. The Registrant has retained a portion of the cash from the property sales
to satisfy obligations of the Registrant as well as establish a reserve for
contingencies. The timing of the termination of the Registrant and final
distribution of cash will depend upon the nature and extent of liabilities and
contingencies which exist or may arise. Such contingencies may include legal
and other fees and costs stemming from litigation involving the Registrant
including, but not limited to, the lawsuits discussed in "Item 3. Legal
Proceedings". Due to this litigation, the Registrant will not be dissolved and
reserves will be held by the Registrant until the conclusion of all
contingencies. There can be no assurances as to the time frame for conclusion
of these contingencies.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources" for information regarding the
Registrant's Year 2000 readiness.
The Registrant no longer has an ownership interest in any real estate
investment. The General Partner is not aware of any material potential
liability relating to environmental issues or conditions affecting real estate
formerly owned by the Registrant.
The officers and employees of Balcor Partners-XVI, 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.
<PAGE>
In the opinion of the General Partner, the Registrant has obtained adequate
insurance coverage for property liability and property damage matters.
See Notes to Financial Statements for other information regarding former real
estate property investments.
Item 3. Legal Proceedings
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Klein, et al. vs. Lehman Brothers, Inc., et al.
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On August 30, 1996, a proposed class action complaint was filed, Lenore Klein,
et al. vs. Lehman Brothers, Inc., et al. (Superior Court of New Jersey, Law
Division, Union County, Docket No. Unn-L-5162-96). The complaint was amended on
each of October 18, 1996, December 5, 1997 and January 15, 1998. The
Registrant, additional limited partnerships which were sponsored by The Balcor
Company (together with the Registrant, the "Affiliated Partnerships"), The
Balcor Company, American Express Company, Lehman Brothers, Inc., Smith Barney,
Inc., American Express Financial Advisors and other affiliated entities and
various individuals are named defendants in the action. The most recent amended
complaint, plaintiffs' Third Amended Complaint, alleges, among other things,
common law fraud and deceit, negligent misrepresentation, breach of contract,
breach of fiduciary duty and violation of certain New Jersey statutes relating
to the disclosure of information in the offering of limited partnership
interests in the Affiliated Partnerships, the marketing of interests in the
Affiliated Partnerships and the acquisition of real properties for the
Affiliated Partnerships. The Third Amended Complaint seeks judgment for
compensatory damages equal to the amount invested in the Affiliated
Partnerships by the proposed class plus interest; general damages for injuries
arising from the defendants' alleged actions; equitable relief, including
rescission, on certain counts; punitive damages; treble damages on certain
counts; recovery from the defendants of all profits received by them as a
result of their alleged actions relating to the Affiliated Partnerships;
attorneys' fees and other costs.
In June 1998, the defendants filed a motion to dismiss the complaint for
failure to state a cause of action. Oral arguments were heard by the court on
August 21, 1998. On September 24, 1998, the judge issued a letter opinion
granting the defendants' motion to dismiss the complaint. On October 23, 1998,
the judge announced that he would enter an order dismissing the complaint
without prejudice, but stated that the plaintiffs would be required to file any
new pleading in a separate action and would not be allowed to amend the
existing complaint. The plaintiffs moved for a reconsideration of the judge's
ruling, which was denied on November 20, 1998. On December 28, 1998, plaintiffs
filed a notice of appeal from both the judge's October 23 and November 20, 1998
rulings.
On March 11, 1999, an order was entered by the Superior Court of New Jersey,
Appellate Division, dismissing the appeal in this action with prejudice.
Therefore, this will be the final report to investors regarding this matter.
<PAGE>
Masri vs. Lehman Brothers, Inc., et al.
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On February 29, 1996, a proposed class action complaint was filed, Raymond
Masri vs. Lehman Brothers, Inc., et al., Case No. 96/103727 (Supreme Court of
the State of New York, County of New York). The Registrant, additional limited
partnerships which were sponsored by The Balcor Company, three limited
partnerships sponsored by the predecessor of Lehman Brothers, Inc. (together
with the Registrant and the affiliated partnerships, the "Defendant
Partnerships"), Lehman Brothers, Inc. and Smith Barney, Inc. are defendants.
The complaint alleges, among other things, common law fraud and deceit,
negligent misrepresentation and breach of fiduciary duty relating to the
disclosure of information in the offering of limited partnership interests in
the Defendant Partnerships. The complaint seeks judgment for compensatory
damages equal to the amount invested in the Defendant Partnerships by the
proposed class plus interest accrued thereon; general damages for injuries
arising from the defendants' alleged actions; recovery from the defendants of
all profits received by them as a result of their alleged actions relating to
the Defendant Partnerships; exemplary damages; attorneys' fees and other costs.
The defendants intend to vigorously contest this action. No class has been
certified as of this date. The Registrant believes it has meritorious defenses
to contest the claims. It is not determinable at this time how the outcome of
this action will impact the remaining cash reserves of the Registrant.
Plaintiffs' lead counsel also represents the plaintiffs in the Lenore Klein
matter discussed above. Plaintiffs' counsel has indicated an intent to withdraw
this complaint. Raymond Masri has joined as an additional plaintiff in the
Lenore Klein matter discussed above.
Bruss et al. vs. Lehman Brothers, Inc., et al.
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On January 25, 1999, a proposed class action complaint was filed, Dorothy
Bruss, et al. vs. Lehman Brothers, Inc., et al. (Superior Court of New Jersey,
Law Division, Essex County, Docket No. L-000898-99). The Registrant,
additional limited partnerships which were sponsored by The Balcor Company
(together with the Registrant, the "Affiliated Partnerships"), The Balcor
Company, American Express Company, Lehman Brothers, Inc., Smith Barney, Inc.,
American Express Financial Corporation, and other affiliated entities and
various individuals are named defendants in the action. Lead counsel
representing the plaintiffs in this case is the same counsel representing the
plaintiffs in each of the Lenore Klein and Raymond Masri cases discussed above.
The complaint relates largely to the same issues as those raised in the Lenore
Klein and the Raymond Masri cases. The complaint alleges, among other things,
common law fraud and deceit, negligent misrepresentation, breach of contract,
breach of fiduciary duty and violation of certain New Jersey and other similar
state statutes relating to the disclosure of information in the offering of
limited partnership interests in the Affiliated Partnerships, the marketing of
interests in the Affiliated Partnerships and the acquisition of real property
for the Affiliated Partnerships. The complaint seeks judgment for
compensatory damages equal to the amount invested in the Affiliated
<PAGE>
Partnerships by the proposed class plus interest; general damages for injuries
arising from the defendants' alleged actions; equitable relief, including
rescission on certain counts; punitive damages; treble damages on certain
counts; recovery from the Defendants of all profits received by them as a
result of their alleged actions relating to the Affiliated Partnerships; and
attorneys' fees and other costs.
The defendants intend to vigorously contest this action. No class has been
certified as of this date. The Registrant believes that it has meritorious
defenses to contest the claims. It is not determinable at this time how the
outcome of this action will impact the remaining cash reserves of the
Registrant.
Item 4. Submission of Matters to a Vote of Security Holders
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No matters were submitted to a vote of the Limited Partners of the Registrant
during 1998.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
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Matters
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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 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 7,090.
Item 6. Selected Financial Data
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Year ended December 31,
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1998 1997 1996 1995 1994
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Total income $104,700 $2,349,401 $12,182,124 $16,503,016 $14,888,075
(Loss) income
before gain
on sales of
properties and
extraordinary
items (126,317) 712,051 1,491,061 2,142,234 529,539
Net (loss) income (126,317) 13,648,327 33,263,250 2,142,234 663,204
Net (loss) income
per Limited
Partnership
Interest -
Basic and Diluted (1.53) 164.36 398.21 25.65 7.94
Total assets 1,860,973 2,530,776 26,713,606 54,596,297 59,911,923
Mortgage notes
payable None None 11,495,334 56,466,198 57,381,930
Distributions per
Limited Partner-
ship Interest (A) 6.97 307.00 191.00 77.50 5.00
(A) These amounts include a distribution of original capital of $0.68, $299.00,
$160.00 and $29.00 per Limited Partnership Interest for the years 1998, 1997,
1996 and 1995, respectively.
Item 7. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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<PAGE>
Operations
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Summary of Operations
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Balcor Realty Investors 85 - Series I A Real Estate Limited Partnership (the
"Partnership") sold six properties during 1996 and its remaining property
during 1997 and recognized gains in connection with these sales. In addition,
the Partnership held minority joint venture interests in one property which was
sold in 1996 and one which was sold in 1997 and recognized its share of the
gain in connection with these sales. During 1998, administrative expenses were
higher than interest income earned on short-term investments which resulted in
a net loss during 1998 as compared to net income during 1997. Primarily as a
result of the significant aggregate gains recognized in connection with the six
property sales in 1996, net income decreased during 1997 as compared to 1996.
Further discussion of the Partnership's operations is summarized below.
1998 Compared to 1997
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During 1997, the Partnership sold the Templeton Park Apartments and recognized
a gain of $12,768,729 in connection with the sale of the property. As a result
of the sale of the property, rental and service income, interest expense on
mortgage note payable, depreciation, real estate taxes and property management
fees ceased in 1997.
Higher average cash balances were available for investment during 1997 due to
proceeds received in connection with the 1996 and 1997 property sales prior to
distribution to Limited Partners in January, April and October 1997. As a
result, interest income on short-term investments decreased during 1998 as
compared to 1997.
The Partnership recognized other income during 1997 primarily in connection
with partial refunds of prior years' insurance premiums relating to the
Partnership's properties.
The Partnership paid $1,025,000 to the holder of the first mortgage loan in
connection with the sale of the Templeton Park Apartments during 1997. This
amount was recorded as lender participation and represents additional interest
calculated as a percentage of the sale price in excess of an amount specified
in the loan agreement.
Property operating expenses decreased during 1998 as compared to 1997 due to
the sale of the Templeton Park Apartments. During 1998, the Partnership paid
its share of additional expenditures related to the North Hill Apartments, in
which the Partnership held a minority joint venture interest. This property was
sold in 1997.
The North Hill Apartments was owned by a joint venture consisting of the
Partnership and an affiliate. The property was sold in September 1997. During
<PAGE>
1997, participation in income of joint venture with affiliate consisted
primarily of the Partnership's share of the gain recognized from the sale of
the property. As a result of the sale, participation in income of joint venture
with affiliate ceased.
In connection with the sale of the North Hill Apartments in 1997, the joint
venture wrote off the remaining unamortized deferred financing fees of
$617,919, of which $154,480 was the Partnership's share. Also, in connection
with the sale of the property, the joint venture wrote-off the remaining
unamortized balance of a bond discount fee relating to the 1994 bond
refinancing of the property of $61,894, of which $15,473 was the Partnership's
share. These amounts were recognized as extraordinary items and classified as
debt extinguishment expense for financial statement purposes.
As a result of the 1997 sale of the North Hill Apartments, the joint venture
recognized an extraordinary gain on forgiveness of debt of $1,350,000, of which
$337,500 represents the Partnership's share.
1997 Compared to 1996
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During 1996, the Partnership sold the Willowbend, Forest Ridge - Phase I,
Boulder Springs, Timberlake - Phase I, Forestwood and Heather Ridge apartment
complexes and recognized gains in connection with these sales totaling
$33,803,968. These sales resulted in decreases in rental and service income,
interest expense on mortgage notes payable, depreciation, amortization of
deferred expenses, property operating expense, real estate taxes, and property
management fees during 1997 as compared to 1996.
The Partnership had higher average cash balances in 1996 as a result of the
proceeds received in connection with the 1996 property sales which were
invested prior to distribution to Limited Partners during the first half of
1997. This resulted in a decrease in interest income on short-term investments
during 1997 as compared to 1996.
The Seabrook and North Hill apartment complexes were owned by joint ventures
consisting of the Partnership and an affiliate. The joint venture that owned
the Seabrook Apartments sold the property in 1996 and recognized a gain of
$1,363,431 from the sale of this property, of which $167,739 was the
Partnership's share. The joint venture that owned the North Hill Apartments
sold the property in 1997 and recognized a gain of $6,569,949 from the sale of
this property, of which $1,642,487 was the Partnership's share. As a result of
the larger gain on sale recognized in 1997 in connection with the North Hill
Apartments sale, the Partnership recognized higher participation in income of
joint ventures with affiliates during 1997 as compared to 1996.
Primarily as a result of lower accounting, portfolio management and legal costs
in 1997 as a result of the 1996 property sales, administrative expenses
decreased in 1997 as compared to 1996.
In 1996, the Partnership recognized extraordinary debt extinguishment expense
of $2,031,779 which was comprised of prepayment penalties related to the
<PAGE>
Willowbend, Timberlake - Phase I, Forestwood and Heather Ridge mortgage loans
and the write off of the remaining unamortized deferred expenses relating to
the mortgage loans repaid in connection with the six property sales.
Liquidity and Capital Resources
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The cash position of the Partnership decreased by approximately $654,000 as of
December 31, 1998 as compared to December 31, 1997 primarily due to a
distribution paid to Limited Partners during January 1998 from remaining
available Net Cash Receipts reserves and available Net Cash Proceeds received
from the Partnership's share of the sale holdback on the North Hill Apartments.
The Partnership used cash of approximately $77,000 in its operating activities
to pay administrative expenses and property operating expenses related to a
sold property, which were partially offset by interest income earned on
short-term investments. The Partnership used cash in its financing activities
of approximately $576,000 to pay a distribution to Limited Partners.
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 September
1997. The Partnership has retained a portion of the cash from the property
sales to satisfy obligations of the Partnership as well as to establish a
reserve for contingencies. The timing of the termination of the Partnership and
final distribution of cash will depend upon the nature and extent of
liabilities and contingencies which exist or may arise. Such contingencies may
include legal and other fees and costs stemming from litigation involving the
Partnership including, but not limited to, the lawsuits discussed in "Item 3.
Legal Proceedings". Due to this litigation, the Partnership will not be
dissolved and reserves will be held by the Partnership until the conclusion of
all contingencies. There can be no assurances as to the time frame for
conclusion of these contingencies.
The Partnership made distributions totaling $6.97, $307.00 and $191.00 per
Interest in 1998, 1997 and 1996, respectively. See Statements of Partners'
Capital (Deficit) for additional information. Distributions were comprised of
$6.29 per Interest of Net Cash Receipts and $0.68 per Interest of Net Cash
Proceeds in 1998, $8.00 per Interest of Net Cash Receipts and $299.00 per
Interest of Net Cash Proceeds in 1997 and $31.00 per Interest of Net Cash
Receipts and $160.00 per Interest of Net Cash Proceeds in 1996.
Limited Partners have received cash distributions totaling $587.47 per $1,000
Interest as well as certain tax benefits. Of this amount, $98.79 represents Net
Cash Receipts and $488.68 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. Limited Partners will not recover all of
their original investment.
The Partnership sold all of its remaining real property investments and
distributed a majority of the proceeds from these sales to Limited Partners in
1996 and 1997. Since the Partnership no longer has any operating assets, the
<PAGE>
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.
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 Disclosure About Market Risk
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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.
<PAGE>
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 $1,860,973 $11,414,077 $ 2,530,776 $12,083,880
Partners' capital
(deficit) accounts:
General Partner (306,029) (305,461) (306,029) (306,029)
Limited Partners 2,082,069 11,634,605 2,784,784 12,351,562
Net income (loss):
General Partner None 568 56,097 483,740
Limited Partners (126,317) (140,559) 13,592,230 21,031,233
Per Limited Part-
nership Interest (1.53)(A) (1.70) 164.36(A) 254.32
(A) Amount represents basic and diluted net (loss) income per Limited
Partnership Interest.
Item 9. Changes in and Disagreements with Accountants on Accounting and
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Financial Disclosure
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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
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(a) Neither the Registrant nor Balcor Partners-XVI, its General Partner, has
either a Board of Directors or a Board of Advisors.
(b, c & e) The names, ages and business experiences 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 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.
(e) 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
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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 9 of Notes to Financial Statements for
the information relating to transactions with affiliates.
Item 12. Security Ownership of Certain Beneficial Owners and Management
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(a) The following entities are the sole Limited Partners which own 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
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Limited WIG 85-I 3,131.13 3.79%
Partnership Partners Limited
Interests Chicago, Partnership
Illinois Interests
Limited Metropolitan 2,654.15 3.21%
Partnership Acquisition VII Limited
Interests Greenville, Partnership
South Carolina Interests
While WIG 85-I Partners and Metropolitan Acquisition VII individually own less
than 5% of the Interests, for purposes of this Item 12, WIG 85-I Partners is an
affiliate of Metropolitan Acquisition VII and, collectively, they own 7% of the
Interests.
(b) Balcor Partners-XVI and its officers and partners own as a group the
following Limited Partnership Interests of the Registrant:
Amount
Beneficially
Title of Class Owned Percent of Class
- -------------------------------------------------------------------------------
Limited Partnership
Interest 5 Interests Less than 1%<PAGE>
Relatives of the officers and affiliates of the partners of the General Partner
owned 875 additional Interests as of December 31, 1998.
In addition, Balcor LP Corp., an affiliate of the General Partner, holds title
to 15 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 9 of Notes to Financial Statements for additional information relating
to transactions with affiliates.
(c) No management person is indebted to the Registrant.
(d) The Registrant has no outstanding agreements with any promoters.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
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(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
is set forth as Exhibit 3 to Amendment No. 1 to the Registrant's Registration
Statement on Form S-11 dated November 29, 1984 (Registration No. 2-92777), and
said Agreement and Certificate is incorporated herein by reference.
(4) The Subscription Agreement as set forth as Exhibit 4.1 to Amendment No. 1
to Registrant's Registration Statement on Form S-11 dated November 29, 1984
(Registration No. 2-92777) and Form of Confirmation regarding Interests in the
Partnership as set forth as Exhibit 4.2 to the Registrant's Report on Form 10-Q
for the quarter ended June 30, 1992 are incorporated herein by reference.
(10) Material Contracts:
(a)(i) Agreement of Sale entered into May 22, 1997 relating to the sale of
North Hill Apartments previously filed as Exhibit (2) to the Registrant's
Current Report on Form 8-K dated May 22, 1997, is incorporated herein by
reference.
(ii) First Amendment to Agreement of Sale and Escrow Agreement relating to the
sale of the North Hill Apartments, De Kalb County, Georgia, previously filed as
Exhibit (10)(f)(ix) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, is incorporated herein by reference.
(iii) Second Amendment to Agreement of Sale and Escrow Agreement relating to
the sale of the North Hill Apartments, De Kalb County, Georgia, previously
filed as Exhibit (10)(f)(x) to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997, is incorporated herein by reference.
(iv) Third Amendment to Agreement of Sale and Escrow Agreement relating to the
sale of the North Hill Apartments, De Kalb County, Georgia, previously filed as
Exhibit (10)(f)(xi) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, is incorporated herein by reference.
(v) Fourth Amendment to Agreement of Sale and Escrow Agreement relating to the
sale of the North Hill Apartments, De Kalb County, Georgia, previously filed as
Exhibit (10)(f)(xii) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, is incorporated herein by reference.
(vi) Fifth Amendment to Agreement of Sale and Escrow Agreement relating to the
sale of the North Hill Apartments, De Kalb County, Georgia, previously filed as
Exhibit (10)(f)(xiii) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, is incorporated herein by reference.
<PAGE>
(vii) Sixth Amendment to Agreement of Sale and Escrow Agreement relating to the
sale of the North Hill Apartments, De Kalb County, Georgia, previously filed as
Exhibit (10)(f)(xiv) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1997, is incorporated herein by reference.
(viii) Letter Agreement dated June 30, 1997, relating to the sale of the North
Hill Apartments, De Kalb County, Georgia, previously filed as Exhibit
(10)(f)(xv) to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997, is incorporated herein by reference.
(ix) Seventh Amendment to Agreement of Sale and Escrow Agreement relating to
the sale of the North Hill Apartments, De Kalb County, Georgia, previously
filed as Exhibit (10)(f)(xvi) to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997, is incorporated herein by reference.
(x) Eighth Amendment to Agreement of Sale and Escrow Agreement relating to the
sale of the North Hill Apartments, De Kalb County, Georgia, previously filed as
Exhibit (10)(f)(x) to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1997, is incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for 1998 is attached hereto.
(b) Reports on Form 8-K: No Reports 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 REALTY INVESTORS 85-SERIES I
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 Partners-XVI,
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 Partners-
XVI, the General Partner
/s/ Thomas E. Meador March 19, 1999
- -------------------- ---------------
Thomas E. Meador
Senior Managing Director and
Chief Financial Officer
(Principal Accounting and
Financial Officer) of Balcor
Partners-XVI, the
General Partner
/s/ Jayne A. Kosik 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 (Deficit), for the years ended December 31,
1998, 1997 and 1996
Statements of Income and Expenses, for the years ended December 31, 1998, 1997
and 1996
Statements of Cash Flows, for the years ended December 31, 1998, 1997 and 1996
Notes to Financial Statements
Financial Statement Schedules are omitted for the reason that they are
inapplicable or equivalent information has been included elsewhere herein.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Balcor Realty Investors 85-Series I
A Real Estate Limited Partnership:
In our opinion, the accompanying balance sheets and the related statements of
partners' capital (deficit), of income and expenses and of cash flows present
fairly, in all material respects, the financial position of Balcor Realty
Investors 85-Series I A 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 12 to the financial statements, the Partnership
intends to cease operations and dissolve.
PricewaterhouseCoopers LLP
Chicago, Illinois
March 17, 1999
<PAGE>
BALCOR REALTY INVESTORS 85-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
December 31, 1998 and 1997
ASSETS
1998 1997
------------- -------------
Cash and cash equivalents $ 1,854,844 $ 2,508,464
Accounts and accrued interest receivable 6,129 22,312
------------- -------------
$ 1,860,973 $ 2,530,776
============= =============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 62,447 $ 17,255
Due to affiliates 22,486 34,766
------------- -------------
Total liabilities 84,933 52,021
------------- -------------
Commitments and contingencies
Limited Partners' capital (82,697
Interests issued and outstanding) 2,082,069 2,784,784
General Partner's deficit (306,029) (306,029)
------------- -------------
Total partners' capital 1,776,040 2,478,755
------------- -------------
$ 1,860,973 $ 2,530,776
============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS 85-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
for the years ended December 31, 1998, 1997 and 1996
Partners' Capital (Deficit) Accounts
--------------- -------------- --------------
General Limited
Total Partner Partners
--------------- -------------- --------------
Balance at December 31, 1995 $ (3,154,401) $ (694,758) $ (2,459,643)
Cash distributions (A) (15,795,128) (15,795,128)
Net income for the year
ended December 31, 1996 33,263,250 332,632 32,930,618
--------------- -------------- --------------
Balance at December 31, 1996 14,313,721 (362,126) 14,675,847
Cash distributions (A) (25,387,979) (25,387,979)
Deemed distribution to
Limited Partners (B) (95,314) (95,314)
Net income for the year
ended December 31, 1997 13,648,327 56,097 13,592,230
--------------- -------------- --------------
Balance at December 31, 1997 2,478,755 (306,029) 2,784,784
Cash distribution (A) (576,398) (576,398)
Net loss for the year
ended December 31, 1998 (126,317) (126,317)
--------------- -------------- --------------
Balance at December 31, 1998 $ 1,776,040 $ (306,029) $ 2,082,069
=============== ============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS 85-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
for the years ended December 31, 1998, 1997 and 1996
(Continued)
(A) Summary of cash distributions per Limited Partnership Interest:
1998 1997 1996
--------------- -------------- --------------
First Quarter $ 6.97 $ 163.00 $ 7.50
Second Quarter None 126.00 7.50
Third Quarter None None 98.00
Fourth Quarter None 18.00 78.00
(B) This amount represents the Partnership's share of a state
withholding tax paid on behalf of the Limited Partners relating to the
gain on the sale of North Hill Apartments, in which the Partnership
held a joint venture interest.
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS 85-SERIES I
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 and service $ 435,999 $ 11,631,972
Interest on short-term
investments $ 104,700 274,269 397,985
Other income 32,411
Participation in income
from joint ventures
with affiliates 1,606,722 152,167
--------------- -------------- --------------
Total income 104,700 2,349,401 12,182,124
--------------- -------------- --------------
Expenses:
Interest on mortgage
notes payable 99,717 3,095,977
Lender participation 1,025,000
Depreciation 62,779 1,394,022
Amortization of deferred
expenses 114,749
Property operating 5,521 181,870 4,262,946
Real estate taxes 12,325 650,872
Property management fees 17,151 588,558
Administrative 225,496 238,508 583,939
--------------- -------------- --------------
Total expenses 231,017 1,637,350 10,691,063
--------------- -------------- --------------
(Loss) income before gain on
sales of properties and
extraordinary items (126,317) 712,051 1,491,061
Gain on sales of properties 12,768,729 33,803,968
--------------- -------------- --------------
(Loss) income before
extraordinary items (126,317) 13,480,780 35,295,029
--------------- -------------- --------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS 85-SERIES I
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
--------------- -------------- --------------
Extraordinary items:
Debt extinguishment expense (2,031,779)
Participation in debt
extinguishment expense
from joint venture
with an affiliate (169,953)
Participation in gain on
forgiveness of debt from
joint venture with
an affiliate 337,500
-------------- --------------
Total extraordinary items 167,547 (2,031,779)
--------------- -------------- --------------
Net (loss) income $ (126,317) $ 13,648,327 $ 33,263,250
=============== ============== ==============
Income before extraordinary
items allocated to General
Partner None $ 55,408 $ 352,950
=============== ============== ==============
(Loss) income before
extraordinary items
allocated to Limited
Partners $ (126,317) $ 13,425,372 $ 34,942,079
=============== ============== ==============
(Loss) income before
extraordinary items per
Limited Partnership Interest
(82,697 issued and
outstanding) - Basic and
Diluted $ (1.53) $ 162.34 $ 422.53
=============== ============== ==============
Extraordinary items
allocated to General
Partner None $ 689 $ (20,318)
=============== ============== ==============
Extraordinary items
allocated to Limited
Partners None $ 166,858 $ (2,011,461)
=============== ============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS 85-SERIES I
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
--------------- -------------- --------------
Extraordinary items per
Limited Partnership
Interest (82,697
issued and outstanding) -
Basic and Diluted None $ 2.02 $ (24.32)
=============== ============== ==============
Net income allocated to
General Partner None $ 56,097 $ 332,632
=============== ============== ==============
Net (loss) income allocated
to Limited Partners $ (126,317) $ 13,592,230 $ 32,930,618
=============== ============== ==============
Net (loss) income per Limited
Partnership Interest
(82,697 issued and
outstanding) - Basic and
Diluted $ (1.53) $ 164.36 $ 398.21
=============== ============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS 85-SERIES I
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 $ (126,317) $ 13,648,327 $ 33,263,250
Adjustments to reconcile
net (loss) income to net
cash (used in) or provided
by operating activities:
Gain on sales of
properties (12,768,729) (33,803,968)
Debt extinguishment
expense 912,349
Participation in debt
extinguishment expense
from joint venture
with an affiliate 169,953
Participation in gain on
forgiveness of debt
from joint venture
with an affiliate (337,500)
Participation in income
from joint ventures
with affiliates (1,606,722) (152,167)
Depreciation of
properties 62,779 1,394,022
Amortization of
deferred expenses 114,749
Net change in:
Accounts and accrued
interest receivable 16,183 146,104 (148,786)
Escrow deposits 825,837
Prepaid expenses 29,911 128,179
Accounts payable 45,192 (103,158) (97,824)
Due to affiliates (12,280) (95,565) 105,830
Accrued liabilities (91,810) (238,293)
Security deposits (62,326) (199,857)
--------------- -------------- --------------
Net cash (used in) or provided
by operating activities (77,222) (1,008,736) 2,103,321
--------------- -------------- --------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS 85-SERIES I
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
--------------- -------------- --------------
Investing activities:
Capital contributions to
joint ventures with
affiliates $ (14,532)
Distributions from joint
ventures with affiliates $ 1,179,284 216,894
Proceeds from sale of
real estate 23,300,000 73,490,077
Payment of selling costs (451,499) (1,853,353)
-------------- --------------
Net cash provided by
investing activities 24,027,785 71,839,086
-------------- --------------
Financing activities:
Distributions to
Limited Partners $ (576,398) (25,387,979) (15,795,128)
Repayment of mortgage
notes payable (11,458,759) (43,686,154)
Principal payments on
mortgage notes payable (36,575) (1,284,710)
Disbursements from
improvement escrows 827,082
--------------- -------------- --------------
Net cash used in
financing activities (576,398) (36,883,313) (59,938,910)
--------------- -------------- --------------
Net change in cash and
cash equivalents (653,620) (13,864,264) 14,003,497
Cash and cash equivalents at
beginning of period 2,508,464 16,372,728 2,369,231
--------------- -------------- --------------
Cash and cash equivalents
at end of period $ 1,854,844 $ 2,508,464 $ 16,372,728
=============== ============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS 85-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Nature of the Partnership's Business:
Balcor Realty Investors 85-Series I 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 September
1997. The Partnership has retained a portion of the cash from the property
sales to satisfy obligations of the Partnership as well as to establish a
reserve for contingencies. The timing of the termination of the Partnership and
final distribution of cash will depend upon the nature and extent of
liabilities and contingencies which exist or may arise. Such contingencies may
include legal and other fees and costs stemming from litigation involving the
Partnership including, but not limited to, the lawsuits discussed in Note 12 of
Notes to the Financial Statements. Due to this litigation, the Partnership will
not be dissolved and reserves will be held by the Partnership until the
conclusion of all contingencies. There can be no assurances as to the time
frame for conclusion of these contingencies.
3. Accounting Policies:
(a) The preparation of the financial statements in conformity with generally
accepted accounting principles requires the General Partner to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could vary from those estimates.
(b) Depreciation expense was computed using the straight-line method. Rates
used in the determination of depreciation were based upon the following
estimated useful lives:
Years
-----
Buildings and improvements 30
Furniture and fixtures 5
Maintenance and repairs were charged to expense when incurred. Expenditures for
improvements were charged to the related asset account.
<PAGE>
When properties were sold, the related costs and accumulated depreciation were
removed from the respective accounts. Any gain or loss on disposition was
recognized in accordance with generally accepted accounting principles.
(c) The Partnership recorded its investments in real estate at the lower of
cost or fair value, and periodically assessed, but not less than on an annual
basis, possible impairment to the value of its properties. The General Partner
estimated the fair value of its properties based on the current sales price
less estimated closing costs. The General Partner determined that no impairment
in value had occurred prior to the sales of the properties. The General Partner
considered the method referred to above to result in a reasonable measurement
of a property's fair value, unless other factors affecting the property's value
indicated otherwise.
(d) Deferred expenses consisted of loan modification and financing fees which
were amortized over the terms of the respective agreements. Upon sale, any
remaining balance was recognized as debt extinguishment expense and classified
as an extraordinary item.
(e) Revenue is recognized on an accrual basis in accordance with generally
accepted accounting principles.
(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) 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.
(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.
(j) Statement of Financial Accounting Standards, No. 128, "Earnings per Share"
was adopted by the Partnership effective for the year ended December 31, 1997
and has been applied to the prior earnings period presented in the financial
statements. Since the Partnership has no dilutive securities, there is no
difference between basic and diluted net income (loss) per Limited Partnership
Interest.
<PAGE>
(k) Certain reclassifications of prior years information were made to conform
to the 1998 presentation.
4. Partnership Agreement:
The Partnership was organized on August 1, 1983. The Partnership Agreement
provides for Balcor Partners-XVI to be the General Partner and for the
admission of Limited Partners through the sale of up to 100,000 Limited
Partnership Interests at $1,000 per Interest, 82,697 of which were sold through
April 30, 1985, the termination date of the offering.
The Partnership Agreement generally provides that the General Partner will be
allocated 1% of the profits and losses and the Limited Partners will be
allocated 99% of the profits and losses. For financial statement purposes,
prior to 1997, the partners were allocated income and 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.
One hundred percent of Net Cash Receipts available for distribution was
distributed to the holders of Interests in proportion to their participating
percentages as of the record date for such distributions. Under certain
circumstances, the General Partner would have participated in the Net Cash
Proceeds of the sale or refinancing of Partnership properties. The General
Partner's participation was limited to 15% of excess Net Cash Proceeds after
the return of Original Capital plus a Cumulative Distribution of 6% to the
holders of Interests, as defined in the Partnership Agreement. Since the
required subordination levels were not met, the General Partner has not
received any distributions of Net Cash Receipts or Net Cash Proceeds during the
lifetime of the Partnership.
5. Mortgage Notes Payable:
During 1997 and 1996, the Partnership incurred interest expense on mortgage
notes payable of $99,717 and $3,095,977, respectively, and paid interest
expense of $99,717 and $3,122,700, respectively.
6. Management Agreements:
The Partnership's properties were managed by a third party management company
prior to the sale of the properties. These management agreements provided for
annual fees of 5% of gross operating receipts.
7. Investment in Joint Ventures with Affiliates:
The Partnership owned a 25% and 15.4% joint venture interest in the North Hill,
and Seabrook apartment complexes, which were sold in 1997 and 1996,
respectively. During 1997 and 1996, the Partnership received net distributions
of $1,274,598 and $202,362, respectively, related to the joint venture
interests held by the Partnership.
<PAGE>
The North Hill Apartments was owned by a joint venture (the "Joint Venture")
consisting of the Partnership and an affiliate. The Partnership and the
affiliate held participating percentages in the Joint Venture of 25% and 75%,
respectively. During September 1997, the Joint Venture sold North Hill
Apartments for a sales price of $21,000,000. The purchaser of the property took
title subject to the existing mortgage loan in the amount of $16,470,524. From
the proceeds of the sale, the Joint Venture paid $164,705 in fees relating to
the assumption of the mortgage loan by the purchaser and $461,949 in selling
costs. In addition, a state withholding tax of $381,256 was paid relating to
the gain on sale of the property, of which $95,314 represents the Partnership's
share. This amount was recorded as a deemed distribution for financial
statement purposes. The Joint Venture recognized a gain of $6,569,949, of which
$1,642,487 represents the Partnership's share. See Note 11 of Notes to the
Financial Statements for additional information related to the Joint Venture.
Seabrook Apartments was owned by a joint venture (the "Joint Venture")
consisting of the Partnership and two affiliates. The Partnership and the
affiliates held participating percentages in the Joint Venture of 15.43% and
84.57%, respectively. In February 1996, the Joint Venture sold the property in
an all cash sale for $5,915,000. From the proceeds of the sale, the Joint
Venture paid $5,081,898 to the third party mortgage holder in full satisfaction
of the first mortgage loan, and paid $190,517 in selling costs. The Joint
Venture recognized a gain of $1,363,431 form the sale of this property, of
which $167,739 was the Partnership's share.
8. Tax Accounting:
The Partnership keeps its books in accordance with the Internal Revenue Code,
rules and regulations promulgated thereunder and existing interpretations
thereof. The accompanying financial statements, which are prepared in
accordance with generally accepted accounting principles, will differ from the
tax return due to the different treatment of various items as specified in the
Internal Revenue Code. The net effect of these accounting differences is that
the net loss for 1998 in the financial statements is $13,674 less than the tax
loss of the Partnership for the same period.
9. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates are:
Year Ended Year Ended Year Ended
12/31/98 12/31/97 12/31/96
-------------- -------------- --------------
Paid Payable Paid Payable Paid Payable
------ ------- ------ ------- ------ -------
Reimbursement of
expenses to General
Partner at cost:
Accounting $ 9,286 $4,810 $19,403 $ 7,454 $18,983 $20,819
Data processing 2,120 872 1,993 1,248 3,545 None
Legal 6,307 3,292 15,632 6,940 13,987 15,339
Portfolio management 25,938 13,512 72,330 19,124 78,856 86,482
Other None None 7,691 None 9,265 7,691
<PAGE>
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
which received no fee for administering the program. However, the General
Partner was reimbursed for program expenses. The Partnership paid premiums to
the deductible insurance program relating to claims for periods prior to May 1,
1995 of $18,404 in 1996.
10. Property Sales:
(a) In February 1997, the Partnership sold the Templeton Park Apartments in an
all cash sale for $23,300,000. From the proceeds of the sale, the Partnership
paid $11,458,759 to the third party mortgage holder in full satisfaction of the
first mortgage loan, paid $451,499 in selling costs and $1,025,000 to the
mortgage holder as a participation fee. The lender participation fee represents
additional interest paid to the lender calculated as a percentage of the sales
price in excess of an amount specified in the loan agreement. The basis of the
property was $10,079,772, which is net of accumulated depreciation of
$6,912,282. For financial statement purposes, the Partnership recognized a gain
of $12,768,729 from the sale of this property.
(b) In March 1996, the Partnership sold the Willowbend Apartments in an all
cash sale for $9,985,000. From the proceeds of the sale, the Partnership paid
$5,790,869 to the third party mortgage holder in full satisfaction of the first
mortgage loan, paid $240,515 in selling costs and paid $243,712 of prepayment
penalties. The basis of the property was $5,117,354, which is net of
accumulated depreciation of $2,613,770. For financial statement purposes, the
Partnership recognized a gain of $4,627,131 from the sale of this property.
(c) In June 1996, the Partnership sold the Forest Ridge - Phase I Apartments in
an all cash sale for $11,600,000. From the proceeds of the sale, the
Partnership paid $7,589,194 to the third party mortgage holder in full
satisfaction of the first mortgage loan, and paid $131,000 in selling costs.
The basis of the property was $7,943,421, which is net of accumulated
depreciation of $4,357,296. For financial statement purposes, the Partnership
recognized a gain of $3,525,579 from the sale of this property.
(d) In September 1996, the Partnership sold the Boulder Springs Apartments in
an all cash sale for $14,831,000. From the proceeds of the sale, the
Partnership paid $8,046,954 to the third party mortgage holder in full
satisfaction of the first mortgage loan, and paid $449,784 in selling costs.
The basis of the property was $5,802,792, which is net of accumulated
depreciation of $4,137,891. For financial statement purposes, the Partnership
recognized a gain of $8,578,424 from the sale of this property.
(e) In September 1996, the Partnership sold the Timberlake - Phase I Apartments
in an all cash sale for $18,134,077. From the proceeds of the sale, the
Partnership paid $11,387,150 to the third party mortgage holder in full
satisfaction of the first mortgage loan, paid $424,282 in selling costs, and
paid $530,383 of prepayment penalties. The basis of the property was
$9,775,943, which is net of accumulated depreciation of $5,445,035. For
financial statement purposes, the Partnership recognized a gain of $7,933,852
from the sale of this property.
<PAGE>
(f) In October 1996, the Partnership sold the Forestwood Apartments in an all
cash sale for $10,050,000. From the proceeds of the sale, the Partnership paid
$5,754,000 to the third party mortgage holder in full satisfaction of the first
mortgage loan, paid $336,012 in selling costs and paid $230,160 of prepayment
penalties. The basis of the property was $5,648,699, which is net of
accumulated depreciation of $3,297,975. For financial statement purposes, the
Partnership recognized a gain of $4,065,289 from the sale of this property.
(g) In November 1996, the Partnership sold the Heather Ridge Apartments in an
all cash sale for $8,890,000. From the proceeds of the sale, the Partnership
paid $5,117,987 to the third party mortgage holder in full satisfaction of the
first mortgage loan, paid $271,760 in selling costs and paid $115,175 of
prepayment penalties. The basis of the property was $3,544,547, which is net of
accumulated depreciation of $3,644,381. For financial statement purposes, the
Partnership recognized a gain of $5,073,693 from the sale of this property.
11. Extraordinary Items:
(a) The North Hill Apartments was owned by a joint venture consisting of the
Partnership and an affiliate. In connection with the sale of the property in
September 1997, the joint venture wrote-off the remaining unamortized deferred
financing fees of $617,919, of which $154,480 was the Partnership's share.
Additionally, in connection with the 1994 bond refinancing of the property, the
joint venture paid a bond discount fee of $84,400 which was recorded as a
reduction of the underlying mortgage balance. In connection with the 1997 sale
of the property, the remaining unamortized balance of the discount fee of
$61,894 was written off, of which $15,473 was the Partnership's share. These
amounts were recognized as extraordinary items and classified as debt
extinguishment expense for financial statement purposes.
(b) In connection with the 1994 bond refinancing of the North Hill Apartments,
the joint venture was obligated under a $1,350,000 non-interest bearing note
from an unaffiliated party, which was to be repaid only to the extent that net
sales proceeds exceeded a certain predetermined level. The net proceeds
received from the sale of the property did not meet the required level.
Therefore, the note was not repaid and was forgiven. For financial statement
purposes, the joint venture recognized an extraordinary gain on forgiveness of
debt of $1,350,000, of which $337,500 was the Partnership's share.
(c) In connection with the sales of the Partnership's properties during 1996,
the Partnership paid prepayment penalties of $243,712, $530,383, $230,160 and
$115,175 relating to the Willowbend, Timberlake - Phase I, Forestwood and
Heather Ridge mortgage loans, respectively. In addition, the Partnership wrote
off the remaining unamortized deferred expenses relating to six of the
properties sold during 1996 totaling $912,349. These amounts were recognized as
extraordinary items and classified as debt extinguishment expense.
12. Contingencies:
The Partnership is currently involved in two related lawsuits, Masri vs. Lehman
Brothers, Inc., et al., and Bruss, et al. vs. Lehman Brothers, Inc., et al.
whereby the Partnership and certain affiliates have been named as defendants
<PAGE>
alleging substantially similar claims involving certain state securities and
common law violations with regard to the property acquisition process of the
Partnership, and to the adequacy and accuracy of disclosures of information
concerning, as well as marketing efforts related to, the offering of the
Limited Partnership Interests of the Partnership. The defendants continue to
vigorously contest these actions. A plaintiff class has not been certified in
either action. With respect to the Masri case, no determinations upon any
significant issues have been made. The Bruss complaint was filed on January
25, 1999. It is not determinable at this time how the outcome of either
action will impact the remaining cash reserves of the Partnership. The
Partnership believes it has meritorious defenses to contest the claims.
<PAGE>
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