UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant x
Filed by a Party other than the Registrant
Check the appropriate box:
_ Preliminary Proxy Statement
_ Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
x Definitive Proxy Statement
- -
_ Definitive Additional Materials
_ Soliciting Material Pursuant to Par. 240.14a-11(c) or Par. 240.14a-12
Balcor/Colonial Storage Income Fund - 85
(Name of Registrant as Specified In Its Charter)
Same
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of filing fee (Check the appropriate box):
_ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
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14a-6(i)(3).
_ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1)Title of each class of securities to which transaction applies:
2)Aggregate number of securities to which transaction applies:
3)Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
4)Proposed maximum aggregate value of transaction:
<PAGE>
5)Fee paid:
x Fee paid previously with preliminary materials.
x Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1)Amount Previously Paid:
$11,950
2)Form, Schedule or Registration Statement No.: SCHEDULE 14A
3)Filing Party: Balcor/Colonial Storage Income Fund - 85
4)Date Filed: November 4, 1997
<PAGE>
BALCOR/COLONIAL STORAGE INCOME FUND - 85
November 4, 1997
Dear Investor:
Balcor/Colonial Storage Income Fund - 85 (the "Partnership") is soliciting
your consent to a proposed sale of all 69 mini-warehouse facilities (the
"Facilities") owned by the Partnership to Value Storage, Ltd., a Texas limited
partnership ("Value Storage"), for $59,750,000. The General Partners of the
Partnership are Balcor Storage Partners-85 ("Balcor") and Colonial Storage 85,
Inc. ("Colonial"). The Partnership has entered into an Agreement of Sale dated
as of September 4, 1997 with Value Storage, as amended by a First Amendment to
Agreement of Sale dated September 17, 1997 and a Second Amendment to Agreement
of Sale dated October 28, 1997 (the "Purchase Agreement"). The sale of the
Facilities is conditioned upon, among other things, the approval of the holders
of a majority of the outstanding Partnership interests ("Units"). If approved,
the sale is expected to close in December 1997, assuming all other conditions
of the Purchase Agreement are satisfied. Therefore, your prompt response to
this solicitation will be appreciated.
Balcor recommends approval of the proposed sale of the Facilities for the
reasons stated in its letter to the Limited Partners enclosed herewith.
Because an affiliate of Colonial expects to be engaged as property manager of
the Facilities if the proposed sale is approved, Colonial has taken a neutral
position with respect to the proposed sale of the Facilities. If the Limited
Partners approve the transaction and the sale of the Facilities to Value
Storage is consummated, the General Partners expect to liquidate the
Partnership as soon thereafter as is practicable and distribute the net
proceeds from the sale of the Facilities and any other funds of the Partnership
available for distribution in the manner set forth in the Amended and Restated
Agreement and Certificate of Limited Partnership (the "Partnership Agreement").
The distributions in liquidation are estimated to be approximately $208 to $211
per Unit. The final determination of any distributions in liquidation would
depend on certain amounts that may vary through and until the date of closing,
including (i) net proceeds from the sale after prorations, (ii) closing and
solicitation costs and (iii) net cash receipts and working capital reserves
from operations prior to closing. If the sale to Value Storage is consummated
and a liquidating distribution of $208 per Unit is paid, Limited Partners will
have received distributions over the lifetime of the Partnership totaling
approximately $441 per Unit (based on an original investment of $250 per Unit).
The General Partners urge you to carefully review the enclosed Consent
Solicitation as soon as possible, complete the enclosed consent form and return
it in the business-reply envelope not later than November 21, 1997. The
affirmative vote of holders of a majority of the outstanding Units must be
received in order to consummate the proposed sale of the Facilities.
Therefore, failure to vote is the equivalent of voting against the proposed
sale of the Facilities.
<PAGE>
Should you have any questions regarding the proposed sale, please contact
MAVRICC Management Systems, Inc. at (800) 422-5267. Your prompt response to
this solicitation will be appreciated.
Very truly yours, Very truly yours,
/s/James R Pruett /s/Thomas E. Meador
James R. Pruett, President Thomas E. Meador, Chairman
Colonial Storage 85, Inc. Balcor Storage Partners-85
<PAGE>
BALCOR STORAGE PARTNERS-85
Bannockburn Lake Office Plaza
2355 Waukegan Road, Suite A200
Bannockburn, Illinois 60015
(847) 267-1600
Dear Investor:
Balcor Storage Partners-85 ("Balcor"), one of the general partners of
Balcor/Colonial Storage Income Fund-85 (the "Partnership") is soliciting your
vote in favor of a proposed sale of the 69 properties (the "Facilities") owned
by the Partnership to Value Storage, Ltd., a Texas limited partnership ("Value
Storage") for a sale price of $59,750,000. Balcor strongly recommends you vote
in favor of the sale. Balcor believes that now is the time to sell, and that
the price offered by Value Storage is a fair and attractive one. Balcor has
reached these conclusions for a number of reasons:
The market for mini-warehouse storage facilities is currently quite strong.
Readily available capital, relatively low interest rates and favorable property
operating performance have led institutional investors to aggressively seek to
expand their portfolios of mini-warehouse facilities. There is no assurance
that this favorable acquisition environment will continue as changes in any of
these factors could negatively impact market values.
Operations of the Facilities have reached the point where they should be sold.
Balcor believes that continuing to hold the Facilities represents a risk. On
average, the Partnership's Facilities were built more than 20 years ago and
tend to be smaller and possess fewer amenities than those built today. There
has been considerable new development in certain of the markets where the
Facilities are located and Balcor believes that this increase in competition
may have a negative impact on the Facilities' future rents and occupancies. As
stated in the 1996 Annual Report to Investors, operating results for 1996 were
lower than originally budgeted primarily due to increased competition resulting
from new development and expansion of existing self-storage facilities in
various markets. This trend has continued through September 30, 1997, with
revenues remaining flat compared to the same period in 1996. Moreover, the
Facilities' age and the increase in competition has led Balcor to conclude that
increased maintenance and capital expenditures will be needed in the future if
the Facilities are to remain competitive. If our expectation is correct, this
combination of increased expenditures and declining or, at best, flat revenues
will result in a significant decrease in Partnership distributions from
previous levels.
Balcor believes that the offered purchase price for the Facilities is an
excellent price in today's market. When the decision was made to test the
market for the Facilities late last summer, bid proposals were solicited from
all of the major institutional owners of mini-warehouse facilities. This bid
process produced a proposed sale to Acquiport/Amsdell I Limited Partners, a
Delaware limited partnership. Subsequently, Value Storage (which has not
heretofore owned mini-warehouse facilities) made an even higher offer which has
been accepted by the Partnership. Balcor strongly believes that the process
<PAGE>
has resulted in an excellent price for the Facilities. In conjunction with the
sale, Balcor engaged Robert A. Stanger and Co. ("Stanger"), a nationally
recognized company with a particular expertise in mini-warehouse storage
facilities, to consider the fairness of the proposed sale. Based upon its
review, which included a physical inspection of 30 of the Facilities, a review
of the sales procedures and a review of the operating statements and related
financial information of the Partnership and the Facilities, Stanger has
concluded that the price offered by Value Storage is fair. The opinion
rendered by Stanger in all respects meets the standards in the industry for
fairness opinions to the Partnership from a financial point of view.
The Partnership is well beyond its original anticipated holding period for the
Facilities. The Partnership has owned the Facilities for more than 12 years,
well beyond the five to ten year holding period contemplated by the original
prospectus. Through October 1997, investors have received total distributions
of approximately $233 per $250 Unit. Balcor strongly believes the current
level of distributions cannot continue and that the market value of the
Facilities will decline, especially if future capital improvements are not
implemented. This proposed sale represents, in Balcor's opinion, the best
opportunity to liquidate the Partnership's holdings in the near term. Based
upon the projected closing costs and combined with additional funds the
Partnership expects to have through the projected closing date, an initial
distribution of approximately $208 per Unit is projected to be distributed if
the Value Storage sale is closed. Added to prior distributions, this would
represent total distributions to investors of approximately $441 per Unit or an
average annual return of 6.4%.
Balcor urges you to review the enclosed Consent Solicitation carefully and
indicate your vote by completing the enclosed ballot, marking it FOR the sale
to Value Storage, and returning it in the business reply envelope as soon as
possible but in no event later than November 21, 1997. The affirmative vote of
holders of a majority of the outstanding Units must be received in order to
consummate the proposed sale of the Facilities.
Should you have any questions regarding the proposed sale or Balcor's
recommendation, please contact us at (847) 267-1600. Your prompt response is
appreciated.
Very truly yours,
/s/Thomas E. Meador
- -------------------
Thomas E. Meador
Chairman
Balcor Storage Partners-85
<PAGE>
TABLE OF CONTENTS
Page
INTRODUCTION 1
VOTING RIGHTS 2
Record Date 2
Required Vote/Dissenters' Rights 2
Voting Instructions 2
Questions and Assistance 2
BACKGROUND 3
The Partnership 3
The General Partners and the Partnership 3
Tender Offers for the Units 3
Bid Process for the Sale of the Facilities 4
Fairness Opinion 5
Agreements of Colonial and Balcor Regarding Proposed Sale 7
RECOMMENDATIONS OF THE GENERAL PARTNERS 9
Recommendation of Balcor 9
Position of Colonial 9
Additional Considerations 9
PLAN OF SALE AND LIQUIDATION 11
Description of the Purchaser 11
Description of Facilities 11
Summary of Purchase Agreement 13
Liquidation of Partnership 14
Distributions in Liquidation 15
Rejection of Sale 17
Regulatory Compliance 17
Accounting Treatment 17
Certain Federal Income Tax Consequences 17
SOLICITATION PROCEDURES AND EXPENSES 19
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 19
LEGAL PROCEEDINGS 19
ADDITIONAL INFORMATION 19
FINANCIAL INFORMATION 20
Selected Financial Data 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations 20
Operations 21
Liquidity and Capital Resources 22
Financial Statements and Supplementary Data 24
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 24
<PAGE>
INDEX TO FINANCIAL STATEMENTS F-1
APPENDIX A AP-1
<PAGE>
BALCOR/COLONIAL STORAGE INCOME FUND - 85
CONSENT SOLICITATION
OF LIMITED PARTNERS
INTRODUCTION
This Consent Solicitation is being furnished to the limited partners (the
"Limited Partners") of Balcor/Colonial Storage Income Fund - 85, an Illinois
limited partnership (the "Partnership"), in connection with the solicitation of
the approval of the Limited Partners of the proposed sale of substantially all
of the assets of the Partnership, consisting of 69 mini-warehouse facilities
(the "Facilities"). The sale of the Facilities is proposed to be made pursuant
to the terms of an Agreement of Sale dated September 4, 1997 (the "Original
Purchase Agreement"), as amended by a First Amendment to Agreement of Sale
dated September 17, 1997 (the "First Amendment"), and a Second Amendment to
Agreement of Sale dated October 28, 1997 (the "Second Amendment," and
collectively, the "Purchase Agreement"), between Value Storage, Ltd., a Texas
limited partnership ("Value Storage"), and Balcor Storage Partners - 85
("Balcor") and Colonial Storage 85, Inc. ("Colonial") in their capacity as
general partners of the Partnership (the "General Partners"). Value Storage is
not affiliated with the Partnership or either General Partner, although if the
sale of the Facilities is consummated an affiliate of Colonial expects to
manage such Facilities on behalf of Value Storage. If approved, the sale is
currently expected to close in December, 1997, assuming all conditions of the
Purchase Agreement are satisfied. Unless extended, the Purchase Agreement
automatically terminates in the event the holders of a majority of the
outstanding Units have not consented to the proposed transaction on or before
January 15, 1998. See "Plan of Sale and Liquidation - Summary of Purchase
Agreement."
If the sale of the Facilities is approved and the closing occurs, the
General Partners intend to liquidate the Partnership as soon thereafter as is
practicable and distribute the net proceeds of the sale of the Facilities and
any other funds of the Partnership available for distribution in the manner set
forth in the Amended and Restated Agreement and Certificate of Limited
Partnership (the "Partnership Agreement"). See "Plan of Sale and Liquidation -
Liquidation of Partnership." The distributions in liquidation are estimated to
be $208 to $211 per Unit. An initial distribution of at least $208 per Unit is
expected to be made no later than 30 days after the sale of the Facilities is
consummated. The final determination of any distribution in liquidation would
depend on certain amounts that may vary up through the date of closing,
including (i) net proceeds from the sale after prorations, (ii) closing and
solicitation costs and (iii) net cash receipts and working capital reserves
from operations prior to closing. See "Plan of Sale and Liquidation -
Distributions in Liquidation." Upon the completion of the liquidation, the
operations of the Partnership would cease.
This Consent Solicitation and the accompanying form of consent are first
being mailed to the Limited Partners on or about November 4, 1997.
BALCOR URGES YOU TO VOTE BY MARKING THE ENCLOSED
CONSENT FORM "FOR" THE SALE AND SIGNING AND MAILING THE
FORM TO MAVRICC MANAGEMENT SYSTEMS, INC. IN THE
ENCLOSED RETURN ENVELOPE BY NOVEMBER 21, 1997.
<PAGE>
VOTING RIGHTS
Record Date
The General Partners have designated October 1, 1997 as the record date
(the "Record Date") for the determination of Limited Partners entitled to vote
on the sale of the Facilities. As of the Record Date, there were 276,918 Units
outstanding, held by approximately 6,583 Limited Partners.
Required Vote/Dissenters' Rights
Pursuant to Section 15.3 of the Partnership Agreement, the sale of all or
substantially all of the real property assets of the Partnership in a single
transaction requires the consent of holders of a majority of the outstanding
Units. Each Unit is entitled to one vote on the proposal and the affirmative
vote of the holders of a majority of all outstanding Units is required to
approve the sale.
If Limited Partners holding a majority of the outstanding Units approve
the transaction, the General Partners will consummate the sale of the
Facilities as contemplated by the Purchase Agreement and commence the
liquidation of the Partnership as soon as practicable.
Unit holders are not afforded any dissenters' rights under the Uniform
Limited Partnership Act of the State of Illinois or under the Partnership
Agreement.
Voting Instructions
Please complete the enclosed form of ballot, date and sign it as indicated
and return it to MAVRICC Management Systems, Inc. ("MAVRICC"), in the enclosed
return envelope. MAVRICC will also accept ballots delivered by telecopy to
telecopier number (248) 614-4536. Ballots will be counted on or about November
21, 1997, which date may be extended at the discretion of Balcor. The
solicitation of votes will cease (but no earlier than November 21, 1997) if
MAVRICC receives the affirmative vote of the holders of a majority of
outstanding Units. If no direction is indicated on the consent form, signed
ballots will be counted as votes "FOR" the proposed sale of the Facilities.
You may change your ballot at any time prior to the Partnership receiving
the affirmative vote of the holders of a majority of the outstanding Units, by
mailing a properly executed ballot bearing a later date or by mailing a signed,
written notice of revocation to the attention of MAVRICC. Revocation of a
ballot will be effective upon receipt by MAVRICC of either (i) an instrument
revoking the ballot or (ii) a duly executed ballot bearing a later date.
Ballots and this Consent Solicitation were first mailed to Limited Partners on
November 4, 1997.
Questions and Assistance
If you have not received a ballot form or you have questions or need
assistance in voting, please call MAVRICC at (800) 422-5267.
<PAGE>
BACKGROUND
The Partnership
The Partnership was formed in September 1983 pursuant to the Uniform
Limited Partnership Act of the State of Illinois for the purpose of acquiring,
developing, owning, operating, leasing and holding for capital appreciation and
current income, mini-warehouse facilities offering storage space for personal
and business use. The Partnership acquired 69 mini-warehouse facilities in
1985 from affiliates of Colonial. In addition, the Partnership acquired four
facilities from nonaffiliated entities in 1986. The Partnership sold one
property in each of 1989 and 1990 and two properties in 1993. The Facilities
proposed to be sold to Value Storage are the only properties currently owned by
the Partnership. For additional information concerning the Facilities, see
"Plan of Sale and Liquidation - Description of Facilities." As of September
30, 1997, the Partnership had 42 full-time employees and 46 part-time employees
engaged in its operations.
The General Partners and the Partnership
The General Partners of the Partnership are Balcor and Colonial. The
General Partners have served as general partners of the Partnership since its
formation in 1983. The officers, directors and employees of Balcor and
Colonial and their affiliates perform certain services for the Partnership.
The Partnership's Facilities are managed by Colonial Storage Management-85,
Inc. (the "Property Manager"), an affiliate of Colonial.
In June 1985, the Partnership commenced an offering to the public in which
276,918 Units were sold. At the time of the offering, the Partnership stated
in the offering prospectus (the "Prospectus") that its principal objectives
were (i) to preserve and protect the Limited Partners' capital; (ii) to provide
Limited Partners with regular quarterly cash distributions from net cash
receipts; and (iii) to obtain long-term appreciation in the value of its
properties. The Prospectus also advised potential investors that the
Partnership intended to hold the various real properties it acquired until such
time as a sale or other disposition appeared to be advantageous. The
Partnership estimated in the Prospectus that any sale or disposition of the
Facilities would generally occur between the fifth and tenth years after the
acquisition of the Facilities.
Tender Offers for the Units
In early January 1996, an unsolicited tender offer was commenced by
Everest Storage Investors, LLC ("Everest"), to purchase up to 4.9% of the
outstanding Units at a price of $175 per Unit. The General Partners
recommended that the Limited Partners not accept this offer primarily on the
basis that the offering price was inadequate. In February, 1996, Everest
advised the General Partners that the tender offer was fully subscribed and
that 4.9% of the outstanding Units had been tendered and purchased.
<PAGE>
In late January 1996, Public Storage, Inc. ("PSI") commenced an
unsolicited tender offer to purchase up to 25% of the outstanding Units at a
price of $210 per Unit. The General Partners expressed no opinion and remained
neutral with respect to this tender offer. In March, 1996, PSI advised the
General Partners that Units constituting approximately 6.84% of the outstanding
Units had been tendered and purchased.
In June 1996, PSI completed the purchase of 6,643.53 Units at a net cash
price of $210 per Unit from Everest pursuant to a purchase agreement between
PSI and Everest. In July 1996, PSI purchased a total of 247 Units from twelve
individual Unit holders at a cash price of $210 per Unit. Each of those Unit
holders contacted PSI either directly or through an intermediary and offered to
sell their respective Units to PSI.
In August 1996, PSI made another unsolicited tender offer to purchase up
to 25% of the outstanding Units at a price of $210 per Unit. The General
Partners again expressed no opinion and remained neutral with respect to this
latter tender offer. PSI has advised the General Partners that Units
constituting approximately 1.6% of the outstanding Units were tendered and
purchased. As a result, the aggregate holdings of PSI as of August 1, 1997
were approximately 30,317 Units or 10.9% of the outstanding Units.
On January 28, 1997, an unsolicited tender offer was commenced by First
Trust Co. L.P. ("First Trust") to purchase up to 4.9% of the outstanding Units
at a price of $215 per Unit. The General Partners expressed no opinion and
remained neutral with respect to the First Trust tender offer. In August 1997,
First Trust advised the General Partners that approximately 1.83% of the
outstanding Units had been tendered and purchased.
On July 3, 1997, Everest Management, LLC ("Everest Management") commenced
an unsolicited tender offer to purchase up to 0.36% of the outstanding Units at
a price of $125 per Unit. The General Partners recommended against this tender
offer primarily on the basis that the price was inadequate. In August 1997,
Everest Management advised the General Partners that Units representing 0.02%
of the outstanding Units had been tendered and purchased by Everest Management.
Bid Process for the Sale of the Facilities
In August 1996, Balcor retained Insignia Mortgage & Investment Company
("Insignia") to identify potential purchasers of the Partnership's assets,
solicit bids and conduct a bid process in connection with a possible sale of
the Partnership's assets. Using an information package describing the
Facilities (which information included a summary property listing; a financial
summary including 1996 estimates of operating results; actual 1994 and 1995
operating data for each property; a unit mix, unit dimensions and gross
potential income analysis; and comparative nine month 1996 and 1995 financial
information), Insignia, on behalf of Balcor, solicited bids from nine major
institutional owners of mini-warehouse facilities, and received bids from five
of these companies including PSI and Aquiport/Amsdell I Limited Partnership, a
Delaware limited partnership ("Amsdell").
<PAGE>
In August 1996, during PSI's second tender offer to purchase outstanding
Units, Insignia contacted a representative of PSI to determine whether PSI
desired to participate in the bid process. On March 20, 1997, PSI and a
representative of Balcor executed a letter of intent for a cash sale of the
Facilities to PSI for $58,152,780. On April 7, 1997, the letter of intent was
cancelled by PSI. PSI gave the Partnership no reason for its decision to
cancel the letter of intent.
Upon the cancellation of the letter of intent with PSI, Insignia
reapproached Amsdell in mid-April 1997 regarding a possible sale of the
Partnership's assets to Amsdell. On April 14, 1997, Amsdell and Balcor
executed a letter of intent for a cash sale of the Facilities for $58,152,000.
After Amsdell made a physical inspection of various Facilities, Amsdell
requested, and Balcor agreed, to reduce the purchase price to $56,000,000. On
June 16, 1997, Balcor and Amsdell entered into an Agreement of Sale pursuant to
which Amsdell was to purchase the Facilities for a purchase price of
$56,000,000 (the "Amsdell Purchase Agreement"). The Amsdell Purchase Agreement
expressly permitted termination by Balcor in the event the Partnership received
a subsequent offer which the General Partners determined in good faith required
recommendation to the Limited Partners in order to satisfy the General
Partners' fiduciary duty.
On June 16, 1997, Value Storage responded to previous requests from
Colonial to consider a bid for the Facilities. Colonial referred Value Storage
to Balcor and Insignia on June 17, 1997, and on June 18, 1997 Value Storage
forwarded to Balcor a non-binding term sheet in which Value Storage proposed to
purchase the Facilities for a purchase price of $64,000,000 (less a $4,000,000
commission payable to a Value Storage affiliate). On September 4, 1997, after
substantial negotiation and due diligence review of the Facilities, Value
Storage and the Partnership entered into the Original Purchase Agreement,
pursuant to which Value Storage agreed to purchase the Facilities for a
purchase price of $59,750,000 (less a $750,000 commission payable to a Value
Storage affiliate). The Original Purchase Agreement was subject to Value
Storage and the Partnership reaching a mutually satisfactory resolution as to
all title and survey matters affecting the Facilities.
On September 17, 1997, the Partnership and Value Storage entered into the
First Amendment pursuant to which Value Storage waived any claims relating to
the status of the title and survey matters affecting the Facilities as of such
date and Value Storage received a $255,000 credit against the purchase price.
On October 28, 1997, the Partnership and Value Storage entered into the Second
Amendment pursuant to which Value Storage waived any claims relating to
environmental defects affecting the Facilities as of such date and Value
Storage received a $100,000 credit against the purchase price. On September
17, 1997, in accordance with the terms of the Amsdell Purchase Agreement,
Balcor terminated the Amsdell Purchase Agreement and paid to Amsdell a $300,000
termination fee as required by the Amsdell Purchase Agreement. If the sale to
Value Storage contemplated by the Purchase Agreement is consummated, the
Partnership will reimburse Balcor the $300,000 termination fee paid to Amsdell.
<PAGE>
Fairness Opinion
Fairness Opinion from Stanger. Robert A. Stanger & Co. was engaged
by Balcor in February 1997 to render an opinion (the "Opinion") as to the
fairness to the Limited Partners of the Partnership from a financial point of
view of the consideration to be received in a sale of the Facilities. Among
the factors considered in its selection by Balcor were Stanger's experience in
connection with self-storage assets and mergers, acquisitions and
reorganizations of real estate partnerships and its expertise in real estate
valuations and transactions.
The full text of the Opinion, which contains descriptions of the
assumptions and qualifications made, matters considered and limitations on the
review and Opinion, is set forth in Appendix A to this Consent Solicitation and
should be read in its entirety. Certain of the material assumptions,
qualifications and limitations to the Opinion are set forth below. The summary
set forth below does not purport to be a complete description of the analysis
used by Stanger in rendering the Opinion and is qualified in its entirety by
reference to the full text of such Opinion. Arriving at the Opinion is a
complex analytical process not necessarily susceptible to partial analysis or
amenable to summary description.
In connection with its analysis, Stanger made certain assumptions
described more fully below, which Balcor advised Stanger it would be reasonable
to make. Balcor imposed no conditions or limitation on the scope of Stanger's
investigation or with respect to the methods and procedures to be followed in
rendering the Opinion. Balcor and The Balcor Company have agreed to indemnify
Stanger against certain liabilities arising out of its engagement to prepare
and deliver the opinion.
Experience of Stanger. Stanger, founded in 1978, has provided information
research, investment banking and consulting services to clients throughout the
United States, including major New York Stock Exchange member firms and
insurance companies and over seventy companies engaged in the management and
operation of partnerships and real estate investment trusts. The investment
banking activities of Stanger include financial advisory services, asset and
securities valuations, industry and company research and analysis, litigation
support and expert witness services, and due diligence investigations in
connection with both publicly registered and privately placed securities
transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, reorganizations and for estate, tax, corporate and other
purposes. Stanger's valuation practice principally involves partnerships,
partnership securities and the assets typically owned through partnerships
including, but not limited to, real estate, oil and gas reserves, cable
television systems, and equipment leasing assets. In particular, Stanger has
extensive experience with self-storage assets and has advised Balcor that it
has rendered fairness opinion services with respect to transactions involving
over $1.0 billion of these assets since 1993.
<PAGE>
Summary of Materials Considered. In the course of Stanger's analysis to
render its Opinion, Stanger: (i) reviewed the letters of intent between Balcor
and PSI and Amsdell dated March 20 and April 14, 1997, respectively, and
reviewed the Amsdell Purchase Agreement and the Purchase Agreement;
(ii) reviewed the Partnership's annual reports filed on Form 10-K for the years
ended December 31, 1994, 1995 and 1996 and the quarterly reports filed on Form
10-Q for the quarters ended March 31, 1997 and June 30, 1997; (iii) reviewed
summary historical operating statements for each of the Facilities for 1994,
1995, 1996 and operating budgets for 1997; (iv) reviewed unit dimensions
reports (including actual rental rate and market rental rate information),
occupancy trend information, market rental information, property tax
information and capital expenditure information provided by the Property
Manager; (v) performed site inspections of 30 of the 69 Facilities owned by the
Partnership; (vi) interviewed key management personnel of each of the General
Partners and the Property Manager regarding current and projected performance
of the Facilities, conditions in local markets and the physical condition of
the Facilities; (vii) interviewed representatives of Insignia regarding the bid
process and negotiations; (viii) reviewed information regarding purchases and
sales of self-storage properties and other information relating to acquisition
criteria for self-storage properties; and (ix) conducted such other studies,
analyses, inquiries and investigations as Stanger deemed appropriate.
Assumptions. In evaluating the sale of the Facilities, Stanger relied
upon and assumed, without independent verification, the accuracy and
completeness of all financial and other information contained in the bid
solicitation or that was furnished or otherwise communicated to Stanger.
Stanger did not perform an independent appraisal of the assets and liabilities
of the Partnership. Stanger also relied on the assurances of Balcor that any
financial statements, projections, budgets, or value estimates contained in the
bid solicitation or otherwise provided to Stanger were reasonably prepared on a
basis consistent with actual historical experience and reflected the best
currently available estimates and good faith judgment; that no material changes
had occurred in the value of the Facilities or the information reviewed between
the date of the information provided and the date of the Opinion; and that
Balcor, the Partnership and Insignia were not aware of any information or facts
that would cause the information supplied to Stanger to be incomplete or
misleading in any material respect.
Conclusion. Based on the foregoing, Stanger concluded that, based upon
its analysis and assumptions, and as of the date of the fairness opinion, the
consideration to be received upon the sale of the Facilities to Value Storage
is fair to the Partnership from a financial point of view.
In connection with preparing the fairness opinion, Stanger was not engaged
to, and consequently did not, prepare any written report or compendium of its
analysis for internal or external use beyond the analysis set forth in Appendix
A. Stanger does not intend to deliver any additional written summary of this
analysis.
Limitations and Qualifications. Stanger was not requested to, and
therefore did not: (i) select the method of determining the consideration
offered in the sale of the Facilities to Value Storage; (ii) make any
<PAGE>
recommendation to Limited Partners whether to approve or reject the sale of the
Facilities to Value Storage; or (iii) express any opinion as to the business
decision to effect the sale of the Facilities to Value Storage, alternatives to
the sale of the Facilities to Value Storage or tax factors resulting from the
sale of the Facilities to Value Storage. Stanger's opinion is based on
business, economic, real estate and securities markets, and other conditions as
of the date of its analysis. Events occurring after the date of the Opinion
may materially affect the assumptions used in preparing the Opinion.
Compensation; Prior Relationships. For preparing the Opinion in
connection with the potential sale of the Facilities, Stanger was paid a fee of
$300,000 by Balcor. In addition, Stanger will be reimbursed by Balcor for
certain out-of-pocket expenses, including legal fees, and will be indemnified
against certain liabilities including certain liabilities under the Federal
securities laws. Balcor will be reimbursed by the Partnership for these fees
only if the sale to Value Storage is approved. See "Agreements of Colonial and
Balcor Regarding Proposed Sale."
Neither the General Partners nor the Partnership had any business
relationship with Stanger prior to Stanger's engagement to provide the Opinion.
Subsequent to Stanger's engagement to provide the Opinion, an affiliate of
Balcor has engaged Stanger as an expert witness in a litigation matter
unrelated to the Partnership. Stanger has been paid $45,000 in connection with
this litigation, and will be further compensated at its hourly rates.
Agreements of Colonial and Balcor Regarding Proposed Sale
Balcor and Colonial have entered into a letter agreement (the "GP
Agreement") memorializing certain agreements regarding the proposed sale of the
Facilities. The following summarizes the material terms of the GP Agreement (a
copy of which is available to any Limited Partner free of charge upon request):
Consent Solicitation Statement. The General Partners agreed that they
would cause to be prepared, filed with the Securities and Exchange Commission
("SEC") and mailed to the Limited Partners a single proxy statement on behalf
of the Partnership and both General Partners notifying Limited Partners of
their right to vote on the proposed sale of all of the properties of the
Partnership to Value Storage.
Services of MAVRICC. The General Partners agreed to cause the Partnership
to retain MAVRICC to mail this consent solicitation to Limited Partners,
collect the returned ballots and tabulate the vote. MAVRICC is expected to
solicit votes in favor of the proposed sale of the Facilities, provide to both
General Partners all information given to either Colonial or Balcor, and
respond promptly to inquiries from either General Partner.
Separate Solicitations. Colonial and Balcor may each separately solicit
the support of Limited Partners. Such separate solicitations may be conducted
by employees of Colonial and Balcor or by outside proxy solicitation agents.
<PAGE>
Allocation of Costs. Balcor and Colonial agreed that the costs and
expenses incurred in connection with the vote solicitation and proposed sale of
the Facilities shall be divided into three categories to be borne by Balcor and
the Partnership as follows:
Partnership Expenses. The Partnership shall in all events bear
the following costs and expenses: (i) the costs of preparing and filing
the consent solicitation statement, including all legal expenses of
Colonial and all legal expenses of Balcor incurred on or after April 15,
1997; (ii) amounts payable to MAVRICC in connection with the mailing,
receipt and tabulation of solicitation materials and the consent
solicitation; (iii) all legal expenses of Colonial and all legal expenses
of Balcor incurred on or after April 15, 1997 in connection with the
proposed sale to Amsdell or Value Storage; (iv) costs of title commitments
and policies, updated surveys and environmental reports in connection with
the proposed sale to Amsdell or Value Storage; (v) all other costs and
expenses reasonably incurred by either General Partner in connection with
the consent solicitation and proposed sale to Amsdell or Value Storage
which are not otherwise allocated herein; (vi) the costs and expenses
incurred by Colonial and Balcor in connection with any separate
solicitation of the Limited Partners; and (vii) expense reimbursement to
Value Storage of $300,000, and any additional break-up fee payable to
Value Storage, if the Value Storage proposal is rejected by the Limited
Partners.
Separate Expenses. Balcor shall be solely responsible for any
commissions, fees or other expenses due to Insignia in connection with the
proposed sale to Value Storage.
Other Expenses. The following costs and expenses shall be paid
by the Partnership if the sale to Value Storage is approved by the Limite
Partners and shall be paid by Balcor in the event the Limited Partners do
not approve the sale: (i) all expenses incurred in connection with
obtaining the opinion of Stanger with respect to the fairness of the
proposed transaction; and (ii) all legal expenses of Balcor incurred in
connection with the consent solicitation and the proposed sale of the
Partnership's properties prior to April 15, 1997. If the Value Storage
proposal is approved by the Partners (or in the unlikely event Value
Storage forfeits its earnest money deposit), the Partnership will
reimburse Balcor for the $300,000 paid by Balcor to Amsdell in connection
with the termination of the Amsdell Purchase Agreement.
<PAGE>
RECOMMENDATIONS OF THE GENERAL PARTNERS
Recommendation of Balcor
Balcor strongly recommends you vote in favor of the sale of the Facilities
to Value Storage because: (i) present market conditions have resulted in a
strong market for mini-warehouse facilities, and there can be no assurance that
the present market conditions will continue; (ii) Balcor believes that because
of their age and design, many of the Facilities will have difficulty competing
effectively in the mini-warehouse markets without significant expenditures for
capital improvements and maintenance, and that this is accordingly an opportune
time to sell the Facilities; (iii) the Partnership is well beyond its original
anticipated holding period for the Facilities; and (iv) based upon its own
analysis of the market for the Facilities and on the Opinion prepared by
Stanger, Balcor believes that the Value Storage offer is an excellent offer in
today's market.
Balcor recommends a vote "FOR" the sale of the Facilities.
Position of Colonial
If the proposed sale of the Facilities to Value Storage is approved and
consummated, Colonial expects Value Storage to retain an affiliate of Colonial
to manage the Facilities. See "Recommendations of the General Partners --
Additional Considerations." Therefore, Colonial has taken a neutral position
with respect to the sale of the Facilities.
Additional Considerations
The following factors should be considered by the Limited Partners:
Valuation. The December 31, 1996, valuation of the Partnership's assets,
as established by Valuation Counselors Group and Darby & Associates, Joint
Venture was $246 based on a Adjusted Original Capital amount of $247.66 per
Unit. This value was based upon an estimate of the present value of projected
distributions of the Partnership assuming liquidation of its properties at
year-end 2000, adjusted for the current assets and current liabilities of the
Partnership, the present value of the Partnership's administrative costs,
including management fees, and the anticipated costs of dissolution and
termination of the Partnership. This calculation was not intended to be a
current liquidation value, but rather a four year projection which included
projected distributions of cash flows, and therefore may be affected by
changing market conditions, economic factors, interest rates, and unforeseen
events.
Other Offers. Prior to accepting the offer from Value Storage, Balcor
received bids for all or some of the Facilities from five other institutional
investors. The amount which third parties were willing to offer for the
Facilities was in part influenced by prevailing market conditions as well as
the current and expected economic performance of the Facilities. See
"Background - Bid Process for Sale of the Facilities."
<PAGE>
Distributions. Distributions of net cash flow to the Limited Partners
increased each year from 1994 through 1996. Distributions in those years were
$18.67, $23.84 and $24.85 per Unit, respectively, representing annual returns
on adjusted original capital of 7.46%, 9.54% and 9.94%, respectively.
Aggregate distributions thus far in 1997 have been $25.44 per Unit ($2.34 of
which was a return of original capital), representing an annual return on
adjusted original capital of 9.33%.
If the sale to Value Storage is not approved, quarterly distributions to
Limited Partners are expected to continue for so long as the Partnership holds
the Facilities. However, there can be no assurance that the present level of
quarterly distributions can be maintained or increased.
Distribution to General Partners Upon the Sale of the Facilities. The
General Partners will not be entitled to receive distributions of net cash
proceeds in the event the sale to Value Storage is consummated. Pursuant to
Section 9.3 of the Partnership Agreement, all net cash proceeds available for
distribution will be distributed to the Limited Partners until they have first
received an amount equal to a Special Distribution (as defined in the
Partnership Agreement) and then an amount equal to their Adjusted Original
Capital (as defined in the Partnership Agreement) together with any deficiency
in a 12% Cumulative Distribution (as defined in the Partnership Agreement).
The entire net cash proceeds from the sale of the Facilities to Value Storage
will be distributed to the Limited Partners due to this provision. The General
Partners will be entitled to receive a portion of the net cash receipts from
operations for 1997 included in any liquidating distribution. If the
Partnership is liquidated, the Property Manager will also receive its full
property management fee for 1997, a portion of which otherwise is likely to be
deferred. Inasmuch as the Limited Partners will not receive net cash proceeds
from the sale of the Facilities to Value Storage in an amount which exceeds
their Adjusted Original Capital, Balcor has voluntarily waived any share of net
cash receipts for 1997 to which it would be entitled due to the sale to Value
Storage, all of which will be distributed to the Limited Partners. See, "Plan
of Sale and Liquidation - Distributions in Liquidation."
Property Management by Colonial Affiliate. The sole director of Colonial
has longstanding friendships with certain of the control persons of Value
Storage. As a result of these relationships, an affiliate of Colonial expects
to be retained to provide property management services on behalf of Value
Storage if the sale of the Facilities to Value Storage is approved and
consummated. Although the terms of any such property management agreement have
not yet been determined, the remuneration payable by Value Storage to
affiliates of Colonial could be significant.
<PAGE>
PLAN OF SALE AND LIQUIDATION
Description of the Purchaser
Value Storage was recently formed for the purpose of acquiring the
Facilities. Value Storage and its affiliates do not presently operate any
mini-warehouse facilities. Value Storage is not affiliated with either General
Partner or the Partnership, but if the transactions contemplated by the
Purchase Agreement are consummated Value Storage is expected to retain an
affiliate of Colonial to manage the Facilities.
The principal executive offices of Value Storage are located at 3131
McKinney Avenue, Suite 200, Dallas, Texas 75204.
Value Storage has advised the Partnership that it anticipates that it will
fund its acquisition through third party financing secured by the Facilities.
Description of Facilities
The Partnership currently owns 69 mini-warehouse facilities located
throughout the United States. The following table sets forth the name and
location of each of the Facilities proposed to be sold to Value Storage:
Net
Rentable
Land Area No. of
Area (Square Rentable
Location (Acres) Feet) Spaces
- -------------------------------- --------- -------- ---------
3233 East Highway 80, Odessa, 1.3 22,450 156
Texas
2306 N. Collins Boulevard, 1.7 26,098 248
Arlington, Texas
3107 South Lake Drive, Texarkana, 1.1 19,230 152
Texas
6715 Wolflin Road, Amarillo, Texas 1.6 21,080 217
7800 North Broadway, Oklahoma 2.4 35,880 260
City, Oklahoma
1604 Camp Lane, Albany, Georgia 1.9 32,942 299
1005 West Cotton, Longview, Texas 2.2 24,002 208
604 Financial Drive, Norcross, 2.2 34,708 285
Georgia
1320 Norwood Drive, Bedford, Texas 1.8 29,220 251
5311 Apex Highway, Durham, North 3.0 23,000 252
Carolina
218 Eisenhower Drive, Savannah, 1.5 21,716 206
Georgia
132 Slaton Highway, Lubbock, Texas 1.9 16,840 113
2960 South Cobb Drive, Smyrna, 1.8 28,892 255
Georgia
<PAGE>
3513 Highway 45 North, Meridian, 2.0 24,980 186
Mississippi
3194 S. Campbell Avenue, 1.7 25,360 233
Springfield, Missouri
1440 N. Hairston Road, Stone 2.3 30,117 270
Mountain, Georgia
3472 Hillsboro Road, Durham, North 1.9 31,600 315
Carolina
4615 West Beryl Road, Raleigh, 1.7 28,750 295
North Carolina
2826 South Clack Street, Abilene, 2.4 32,038 266
Texas
1301 South Stemmons, Lewisville, 1.2 21,900 162
Texas
2316 Highway 19 North, Meridian, 2.3 27,880 215
Mississippi
3016 South Cooper, Arlington, 1.5 24,912 193
Texas
2215 West Southwest Loop 223, 2.5 28,301 248
Tyler, Texas
2000 Country Club Drive, 2.0 35,379 253
Carrollton, Texas
2331 South Collins Boulevard, 2.0 31,396 276
Arlington, Texas
2990 Pio Nono Avenue, Macon, 1.7 26,998 220
Georgia
5513 East Lancaster, Fort Worth, 1.3 22,104 210
Texas
5121 North Street, Nacogdoches, 2.0 17,483 147
Texas
4917 California Parkway, S.E., 1.7 27,132 247
Fort Worth, Texas
1881 Gordon Highway, Augusta, 1.6 22,464 229
Georgia
3208 East Park Row, Arlington, 2.1 35,505 319
Texas
5502 Chapel Hill Boulevard, Chapel 1.7 26,800 260
Hill, North Carolina
3654 West Pioneer Parkway, 2.3 34,176 253
Arlington, Texas
1311 Northwest Loop 281, Longview, 2.0 24,940 200
Texas
3125 Cherry Street North, 1.3 21,500 258
Winston-Salem, North Carolina
1010 Holiday Hill Drive, North 2.6 42,578 354
Midland, Texas
95 Green Street, Warner Robins, 1.2 19,940 192
Georgia
<PAGE>
2115 Silas Creek Parkway, 1.7 25,350 305
Winston-Salem, North Carolina
3120 Knickerbocker Road, San 1.8 19,425 151
Angelo, Texas
2302 Parkview Drive, San Angelo, 1.1 19,575 180
Texas
8457 Roswell Road, Dunwoody, 3.9 60,240 466
Georgia
5717 Will Ruth Avenue, El Paso, 2.0 33,056 260
Texas
1513 Denman Street, Lufkin, Texas 1.5 14,362 119
9303 Abercorn Extension, Savannah, 3.0 34,080 277
Georgia
1850 North Clack Street, Abilene, 1.2 17,280 99
Texas
7012 Glenwood, Raleigh, North 1.5 25,200 192
Carolina
3730 West Wendover Avenue, 1.7 30,600 289
Greensboro, North Carolina
2305 East Lohman Avenue, Las 1.3 17,380 175
Cruces, New Mexico
4000 I-40 East, Amarillo, Texas 1.6 21,860 218
4701 Osborne Drive, El Paso, Texas 1.3 18,900 173
3229 Highway 80, Mesquite, Texas 2.1 31,120 211
1510 West 7th Street, Clovis, New 1.0 13,640 124
Mexico
914 N.E. 8th Street, Grand 1.8 27,940 206
Prairie, Texas
7469 Tara Boulevard, Jonesboro, 1.8 29,082 221
Georgia
871 North Forest, Amarillo, Texas 2.5 23,379 200
5808 Highway 271 South, Fort 1.1 14,680 123
Smith, Arkansas
5604 Tinker Diagonal, Midwest 1.6 27,901 278
City, Oklahoma
3751 Longmire Way, Doraville, 2.1 29,780 300
Georgia
818 South Clack Street, Abilene, 1.5 16,340 165
Texas
8400 Canyon Drive, Amarillo, Texas 2.2 17,570 157
3121 Washington Road, Augusta, 1.4 28,138 255
Georgia
4011 Midland Boulevard, Forth 1.9 26,580 174
Smith, Arkansas
4141 Snapfinger Woods Drive, 2.7 36,580 336
Decatur, Georgia
1808 Hampton Road, Texarkana, 2.8 28,621 247
Texas
<PAGE>
4155 Milgen Road, Columbus, 1.5 24,624 215
Georgia
426 S. College Drive, Wilmington, 2.3 28,131 290
North Carolina
1412 Poinsett Highway, Greenville, 1.6 19,300 200
South Carolina
2815 White Horse Road, Greenville, 2.6 31,500 309
South Carolina
1515 Mt. Zion Road, Morrow, 5.0 64,539 666
Georgia
The Partnership, by virtue of its ownership of the Facilities, is subject
to federal and state laws and regulations covering various environmental
issues. When necessary, the Partnership utilizes the services of environmental
consultants to assess a wide range of environmental issues and to conduct tests
for contaminations as appropriate. The General Partners are not aware of any
potential liability due to environmental issues or conditions that would be
material to the Partnership. See "Summary of Purchase Agreement."
Summary of Purchase Agreement
The following is a summary of certain of the terms and conditions of the
Purchase Agreement. A copy of the entire Purchase Agreement may be obtained
from the General Partners without charge.
Sale of Facilities. Value Storage has agreed to purchase the Facilities
from the Partnership for an aggregate purchase price of $59,750,000 (the
"Purchase Price"), subject to a credit of $255,000 for title and survey matters
set forth in the First Amendment and a credit of $100,000 for environmental
matters set forth in the Second Amendment. The Purchase Price also includes a
$750,000 commission to be paid to Value Storage or an affiliate of Value
Storage at the closing. The Partnership will pay for all closing costs (other
than professional fees of Value Storage and commissions owed to Insignia)
including, but not limited to, costs of documentation, local and state transfer
stamps, sales tax, personal property tax, title commitments, title policies and
updated surveys in connection with the sale of the Facilities. In addition,
the Partnership has agreed to pay the costs of environmental reports delivered
to Value Storage pursuant to the Purchase Agreement, subject to the
Partnership's prior approval of such costs. Value Storage has deposited
$375,000 (the "Initial Earnest Money") as earnest money to be held in escrow,
and has agreed to deposit an additional $125,000 (the "Additional Earnest
Money" and together with the Initial Earnest Money, the "Earnest Money") on or
before November 1, 1997 as additional earnest money to be held in escrow. The
transaction is currently expected to close in December, 1997, unless terminated
earlier or extended.
Termination. The Purchase Agreement may be terminated at any time prior
to the closing (i) by the Partnership, if the General Partners have recommended
that the Limited Partners consider a proposal or offer with respect to a
<PAGE>
merger, acquisition, tender offer, exchange offer, consolidation or purchase of
the Facilities or similar offer (an "Acquisition Proposal") by a person other
than Value Storage after a determination that such action is necessary for the
General Partners to comply with their fiduciary duties and (ii) by Value
Storage if the consent of holders of a majority of the outstanding Units is not
obtained on or before March 16, 1998. If the Purchase Agreement is terminated
pursuant to clause (i) in the preceding sentence, the Partnership must pay to
Value Storage $300,000 to reimburse Value Storage for its costs and expenses
incurred in connection with the transaction, plus an additional $1,492,500 if
the transactions contemplated by an Acquisition Proposal close within 270 days
of such termination. If the Purchase Agreement is terminated pursuant to
clause (ii) in the second preceding sentence, the Partnership must pay to Value
Storage $300,000 to reimburse Value Storage for its costs and expenses incurred
in connection with the transaction.
Representations. The Partnership has represented and warranted to Value
Storage that (i) except as disclosed in the Purchase Agreement, the Partnership
has no knowledge of any pending or threatened litigation, claim or proceeding
concerning the Facilities; (ii) the Partnership has the power to execute the
Purchase Agreement and consummate the underlying transactions; (iii) to the
Partnership's knowledge, the updated rent rolls which the Partnership has
submitted to Value Storage are accurate as of the signing date; and (iv) to the
Partnership's knowledge, the Partnership has not received notice from any
governmental authority of any uncured violation of environmental laws with
respect to the Facilities. These representations and warranties will not
survive the closing. Furthermore, Value Storage will purchase the Facilities
"AS IS" and "WITH ALL FAULTS" based upon its investigations and inspections of
the Facilities.
Default. In the event of a default by Value Storage under the Purchase
Agreement, the Partnership will retain all earnest money and interest thereon
as its sole right to damages or any other remedy, except for Value Storage's
obligation to indemnify the Partnership and restore the Facilities in
connection with Value Storage's investigations and inspection of the
Facilities. In the event of a default by the Partnership under the Purchase
Agreement, all earnest money and interest accrued thereon must be returned to
Value Storage, as its sole right to damages or any other remedy except for
Value Storage's right to sue for actual damages of up to $750,000 from the
Partnership; provided that if the Partnership's default consists of its refusal
to deliver the closing documents specified in the Purchase Agreement, then
Value Storage is entitled to sue for specific performance.
Liquidation of Partnership
If the sale is approved by the Limited Partners and consummated, the
General Partners expect to liquidate the Partnership as soon as practicable,
applying the net proceeds of the sale and any other funds of the Partnership in
the following manner:
(a) To the payment of the expenses of liquidation and the debts and
liabilities of the Partnership;
<PAGE>
(b) To the setting up of any reserves which the General Partners may deem
reasonably necessary for any contingent or unforeseen liabilities or
obligations of the Partnership;
(c) To the Limited Partners and General Partners as provided in the
Partnership Agreement.
Because the Partnership may be required to satisfy certain debts and
liabilities and establish reserves, as described above, the Partnership may pay
a portion of the liquidating distribution to the Limited Partners shortly after
consummation of the transaction with Value Storage, and pay the balance, if
any, in one or more subsequent distributions.
Distributions in Liquidation
If the holders of a majority of the Units approve the sale of the
Facilities, the Partnership will distribute the available funds of the
Partnership in the manner set forth in "Liquidation of Partnership" above. In
such event, the funds available for distribution would include previously
undistributed net cash receipts from operations prior to closing and working
capital reserves of the Partnership, as well as the net cash proceeds from the
sale of the Facilities to Value Storage. The General Partners presently
estimate that the total distributions in liquidation will be approximately $208
to $211 per Unit.
In estimating the range of distributions in liquidation, the General
Partners have, (i) projected the anticipated amount of net cash receipts from
operations prior to closing and working capital reserves available for
distribution after payment of estimated operating expenses, (ii) deducted the
estimated proxy solicitation costs, professional fees and other expenses of
consummating the sale of the Facilities to Value Storage and winding up the
Partnership's affairs to be borne by the Partnership and (iii) established a
reserve for future contingencies. Although the General Partners believe the
assumptions used are reasonable, there can be no assurance that the projected
results will be attained and, therefore, the actual amount of liquidating
distributions to the Limited Partners may be greater or less than the estimated
range.
The following table illustrates the range of estimated distributions in
liquidation to be paid to the Limited Partners and General Partners if the sale
of the Facilities to Value Storage is approved and consummated.<PAGE>
Low High
------ ------
Distribution of Net Cash Receipts
("NCR"):
NCR on hand at 6/30/97 $2,059,053 $2,059,053
Estimated NCR 7/1/97 to Closing 3,200,000 3,450,000
Less: July and October distributions to (3,082,322) (3,082,322)
Limited Partners
Less: NCR distribution to Colonial (1) (247,685) (262,885)
Less: Prorations (650,000) (520,000)
------------- -----------
Estimated NCR distribution to Limited $1,279,046 $1,643,846
Partners ------------- -----------
------------- -----------
Distribution of Net Cash Proceeds
("NCP"):
Adjusted Purchase Price(2) $58,645,000 $58,645,000
Working capital(3) 497,000 497,000
Less: Estimated Closing and Solicitation (1,675,000) (1,500,000)
Costs
Less: Amsdell Termination Fee (4) (300,000) (300,000)
Less: Reserve for Contingencies (750,000) (550,000)
------------ ------------
Estimated NCP Distribution to Limited $56,417,000 $56,792,000
Partners(5) ------------ ------------
------------ ------------
Total Estimated Distributions to Limited
Partners:
Estimated NCR Distribution to Limited $1,279,046 $1,643,846
Partners
Estimated NCP Distribution to Limited 56,417,000 56,792,000
Partners ----------- -----------
Total Estimated Liquidating Distribution $57,696,046 $58,435,846
----------- -----------
----------- -----------
Estimated Liquidating Distribution per $208(6) $211(6)
Unit ----------- -----------
----------- -----------
<PAGE>
_________________
(1) Equal to 4% of total distributions of net cash receipts during the period
from March 30, 1997 through the closing. Limited Partners have previously
received aggregate distributions of $7,045,019 during such period.
(2) See "Plan of Sale and Liquidation $ Summary of Purchase Agreement" for
description of agreed adjustments to Purchase Price for title, survey and
environmental matters.
(3) Represents return of capital distributable as net cash proceeds.
(4) See "Background - Bid Process for the Sale of the Facilities."
(5) Pursuant to the Partnership Agreement, Limited Partners are entitled to
receive cumulative distributions in a specified amount prior to the
distribution to the General Partners of any net cash proceeds from a sale of
the Facilities. The entire net cash proceeds from the sale of the Facilities
will be distributed to the Limited Partners due to this provision.
(6) The taxable portion of the liquidating distribution per Unit ranges from
$62 to $64 assuming a liquidating distribution per Unit of $208 to $211.
If the sale of the Facilities to Value Storage is approved and consummated,
distributions in liquidation of the Partnership may be paid on more than one
occasion. In order to retain sufficient cash to satisfy the estimated
obligations of the Partnership and establish a reserve for contingencies, the
Partnership may pay a portion of the estimated liquidating distribution shortly
after consummating the transaction with Value Storage and pay the balance in
one or more subsequent distributions. An initial distribution of approximately
$208 per Unit is expected to be made no later than 30 days after the sale to
Value Storage is consummated. The timing and amount of any distributions
subsequent to the initial distribution would depend upon the nature and extent
of any remaining liabilities or contingencies which may subsequently arise.
The estimated reserve for contingencies is approximately $1.99 to $2.71 per
Unit. Such contingencies may include legal and other fees stemming from future
litigation involving the Partnership. In the absence of any such contingencies
arising, the General Partners anticipate that the reserves would be paid within
twelve months subsequent to the initial distribution to the Limited Partners.
In the event a future contingency arises, the reserve may be held by the
Partnership for a period of time in excess of twelve months. The General
Partners will, as soon as practicable, notify Unit holders of such contingency
as well as the amount of additional time that reserves will be held by the
Partnership. The Partnership will distribute such reserves as are retained by
the Partnership as soon as practicable.
At the time of the Partnership's offering of the Units in 1985, the purchase
price of a Unit was $250. Annual distributions per Unit since 1986 have been
as follows:
<PAGE>
Year Amount Year Amount
Distributed Distributed
----- ------------ ------ ---------------
1986 $20.00 1992 $17.03
1987 $18.76 1993 $19.16
1988 $16.89 1994 $18.67
1989 $15.00 1995 $23.84
1990 $16.16 1996 $24.85
1991 $16.76 1997 $25.44
(through
October)
Therefore, if the sale to Value Storage is consummated and the lower estimated
liquidating distribution of $208 per Unit is achieved, Limited Partners are
expected to have received total distributions of approximately $441 per Unit
over the life of the Partnership.
Rejection of Sale
In the event the proposed sale is rejected by the Limited Partners, the
general partners of Balcor have agreed to transfer ownership of Balcor to
affiliates of Colonial pursuant to an Agreement for Purchase of General
Partnership Interests dated August 8, 1997. Balcor and Colonial generally
disagree as to the level of capital expenditures desirable to maintain and
operate the properties and the future direction of the Partnership. If the
Facilities are not sold, it is likely that the general partners will continue
to have such disagreements. The Partnership Agreement does not provide any
mechanism for resolving disagreements other than arbitration, and arbitration
can be lengthy and costly and both General Partners agree that arbitration is
not in the best interests of the Partnership. Therefore, the General Partners
have agreed that if this sale of assets is not approved it would be appropriate
that the Partnership proceed with both General Partners under common control.
Regulatory Compliance
There are no federal or state approvals required and no federal or state
regulatory requirements which must be met in order to consummate the sale of
the Facilities under the Purchase Agreement.
Accounting Treatment
The sale of the Facilities will be accounted for under generally accepted
accounting principles as a sale. Upon the closing of the sale of the
Facilities, the Partnership currently estimates that it will realize a gain for
accounting purposes of approximately $16.3 million to $17.0 million.
<PAGE>
Certain Federal Income Tax Consequences
The following discussion of the anticipated federal income tax consequences of
the proposed sale of the Facilities by the Partnership and the subsequent
liquidation of the Partnership is based upon data and records compiled and
maintained by the General Partners. The tax calculations in the following
discussion represent only estimates by the General Partners and have not been
subject to audit or other formal review by the Partnership's accountants or tax
advisors. The actual tax consequences to a Limited Partner may differ
depending upon factors personal to each Limited Partner's individual tax
situation. Therefore, with respect to the matters described above, as well as
all other tax aspects of a Limited Partner's interest in the Partnership,
Limited Partners should consult their tax advisors with specific reference to
their own tax situations.
In General. When a property is sold or otherwise disposed of, the gain or
loss recognized by the Partnership is allocated among the Limited and General
Partners in accordance with the Partnership Agreement and applicable federal
tax law. Gain and loss is recognized on a property-by-property basis. Gain is
recognized when the sales proceeds exceed the property's adjusted tax basis;
loss is recognized when the property's adjusted tax basis exceeds the sales
proceeds. The Purchase Agreement allocates the Purchase Price among the
Facilities and provides that the portion of the Purchase Price allocated to
land and improvements will not be below the Partnership's tax basis for such
land and improvements. However, the Internal Revenue Service may challenge
such allocation, and reallocate the Purchase Price. Such a reallocation may
change a Limited Partner's tax liability.
Partnership real property and depreciable property used in the Partnership's
business (which is not held for sale to customers in the ordinary course of
business) and held more than one year is "Section 1231 property." Losses (if
any) realized by the Partnership from the sale of Section 1231 property
generally will constitute "passive activity losses" with respect to a Limited
Partner, other than certain Limited Partners eligible to treat all of their
rental real estate activities as a single activity. Passive activity losses
can only offset passive activity income, until the Limited Partner disposes of
his entire interest in the passive activity. Gain (if any) realized by the
Partnership from the sale of Section 1231 property will be "Section 1231 gain"
except as to depreciation subject to recapture under Section 1245 of the
Internal Revenue Code of 1986, as amended (the "Code") and rent recapture under
Section 467 of the Code. A Limited Partner's share of any Section 1231 gain
from the Partnership in any year will first offset any current passive activity
losses and suspended passive activity losses from the Partnership and other
passive activities; any excess will be combined with any other Section 1231
gains or losses (exclusive of passive activity losses) incurred by the Limited
Partner. If the Section 1231 gains exceed the Section 1231 losses, such net
gains will be treated as long-term capital gains. However, a taxpayer's net
Section 1231 gains will be treated as ordinary income (rather than capital
gain) to the extent of such taxpayer's net Section 1231 losses within the
preceding five years. In the case of any property, the gain from any sale may
exceed the actual cash proceeds realized upon the sale.
The General Partners anticipate that the gain recognized on the sale of the
Facilities will be predominantly taxable at long-term capital gain rates. The
<PAGE>
Partnership has depreciated its real properties using the straight-line method,
and therefore there will be no depreciation recapture as ordinary income of
gain recognized upon the disposition of the real property. A portion of the
gain may be recognized as ordinary income with respect to the Partnership's
personal property, as all depreciation claimed on personal property is subject
to being fully recaptured as ordinary income (to the extent of any gain) upon
the sale or other disposition. A small portion of the purchase price may be
allocated to other items which are taxable at ordinary income rates.
Each Limited Partner's basis in his Units is increased by the amount by which
his distributable share of income exceeds any distributions made or deemed to
be made (e.g., a deemed distribution resulting from a reduction of a Limited
Partner's share of the Partnership's liabilities) to him during such year.
The distribution of cash to a Limited Partner pursuant to the liquidation of
the Partnership will be treated as a taxable distribution, with the amount of
taxable gain (or loss) realized equal to the difference between (i) the amount
of cash received plus such Limited Partner's share of any reduction of
Partnership liabilities and (ii) the tax basis of his Unit.
Upon the liquidation of the Partnership, the Limited Partner's share of any
losses from the Partnership previously suspended pursuant to the passive
activity loss rules may be used to offset certain taxable income from other
sources, including the gain, if any, realized as a result of the liquidation.
Any remaining gain from the liquidation may be offset by current or previously
suspended losses from other passive activities of the Limited Partner.
Gain or loss realized on the liquidation will be treated as capital gain or
loss, and will be long-term if the Limited Partner has held his Units for more
than eighteen months when the liquidation is consummated. For non-corporate
limited partners, long-term capital gains are generally taxed at a 20% rate.
If the Limited Partner has held his units more than one year, but less than 18
months, such gain will be a mid-term capital gain. Mid-term capital gains are
generally taxed at a 28% rate. If the Limited Partner has held his Units for
less than a year, any gain (or loss) will be a short-term capital gain (or
loss). Short-term capital gains are taxed as ordinary income. Capital losses
generally are deductible only to the extent of capital gains plus, in the case
of a non-corporate Limited Partner, up to $3,000 of ordinary income. Capital
losses realized upon the liquidation may be utilized to offset capital gains
from other sources and may be carried forward, subject to applicable
limitations.
Special considerations may be applicable to particular types of Limited
Partners. Each Limited Partner should consult his tax advisor regarding the
specific tax consequences of the sale of the Partnership's Facilities and
liquidation of the Partnership, under not only the U.S. federal income tax laws
but also applicable state, local, foreign or other tax laws.
The foregoing discussion does not take into account any state or local income
tax consequences or federal alternative minimum tax consequences.
<PAGE>
Taxable Individual Limited Partners. Any gain realized by an individual Limited
Partner subject to Federal income taxation (a "Taxable Individual
Limited Partner") may possibly be offset by losses from other "passive
activities" under the passive loss rules of Section 469 of the Internal Revenue
Code of 1986, as amended (the "Code"). In the event a Taxable Individual
Limited Partner realizes a loss on disposition, such loss may be deductible
only to the extent permitted under the passive loss rules and other applicable
limitations. If a Taxable Individual Limited Partner recognizes a loss on his
Units (and such Units have not been aggregated for purposes of the passive loss
rules with activities not currently being sold), loss recognized on the sale
should be deductible by such Taxable Individual Limited Partner against
non-passive income, subject to any other applicable limitations (including
capital loss limitations).
In addition, other considerations could affect a Taxable Individual Limited
Partner's tax liability, including, but not limited to, alternative minimum
taxes and state income taxes.
Tax-exempt Limited Partners. Limited Partners that are generally exempt from
Federal income taxation (such as pension and retirement plans and religious,
charitable, scientific, literary and educational organizations (a "Tax-exempt
Limited Partner")) will generally not be taxed on a sale of the Partnership's
properties. However, in order to avoid tax on the sale, certain entities
exempt under Sections 501(c)(7), (c)(9), (c)(17) and (c)(20)) of the Code must
set aside or reserve the income from the sale for purposes related to their
tax-exempt status, as described in Section 512(a)(3) of the Code. In addition,
to the extent the Units of a Tax-exempt Limited Partner are considered
debt-financed property as a result of borrowing by such Partner, all or part of
the gain from the sale of the property and liquidation of the Units may be
taxable as unrelated business taxable income (although certain "qualified
organizations" may be excepted from taxation under Section 514(c)(9) of the
Code).
SOLICITATION PROCEDURES AND EXPENSES
For a discussion of the solicitation procedures and expenses, see "Background-
Agreements of Balcor and Colonial Regarding Proposed Sale."
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of the Record Date, PSI owns 10.9% of the outstanding Units. Balcor owns
400 Units which it intends to vote in favor of the sale. Colonial owns no
Units. Relatives and affiliates of the officers or directors of Balcor own 23
Units.
LEGAL PROCEEDINGS
The Partnership is not subject to any material pending legal proceedings.
<PAGE>
ADDITIONAL INFORMATION
The principal executive offices of Balcor are located at Bannockburn Lake
Office Plaza, 2355 Waukegan Road, Suite A-200, Bannockburn, Illinois 60015,
(telephone: (847) 267-1600). The principal executive offices of Colonial are
located at 4381 Green Oaks Boulevard West, Suite 100, Arlington, Texas,
76016-4468 (telephone: (817) 561-0100).
The Units are registered pursuant to Section 12(g) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). As such, the Partnership
currently is subject to the informational requirements of the Exchange Act and,
in accordance therewith, is obligated to file periodic reports and other
information with the Commission relating to its business, financial condition
and other matters. Reports and other information filed by the Partnership can
be inspected and copied at the Public Reference Branch of the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the Commission's
Regional Offices located at Seven World Trade Center, New York, New York 10048
and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies
of such material can be obtained at prescribed rates from Public Reference
Branch of the Commission located at 450 Fifth Street, N.W., Washington, D.C.
20549. The Partnership's registration and reporting requirements under the
Exchange Act will continue after the sale of the Facilities until such time as
the Partnership is dissolved.
FINANCIAL INFORMATION
Selected Financial Data
Six Months Ended June 30 Year Ended December 31
------------------------ ------------------------
1997 1996 1996 1995
---- ---- ---- ----
Rental Income $5,168,006 $5,220,318 $10,519,053 $10,316,881
Interest Income 48,838 139,215 $248,062 330,915
Net Income 2,173,225 2,349,910 $4,043,793 4,124,388
Net Income per Limited
Partnership Interest 7.77 8.40 $14.46 14.74
Taxable Income --- --- $4,015,081 4,693,882
Taxable Income per
Limited Partnership
Interest --- --- $14.35 16.78
Cash & cash
equivalents 2,594,428 2,772,711 $4,187,645 3,643,915
Total mini-warehouse
properties, net of
accumulated
depreciation 40,915,105 42,541,137 41,655,344 43,428,692
Total Assets 43,744,649 47,153,197 46,089,970 48,991,405
<PAGE>
Distributions to
Limited Partners 3,962,697 3,419,938 $6,882,762 6,601,725
Distributions per
Limited Partnership
Interest 14.31 12.35 $24.85 23.84
Properties owned on
December 31 69 69 69 69
Year Ended December 31
-----------------------
1994 1993 1992
---- ---- ----
Rental Income $10,067,226 $9,298,505 8,600,074
Interest Income 293,869 213,018 194,020
Net Income 4,816,067 4,089,522 3,443,706
Net Income per Limited
Partnership Interest 17.22 14.62 12.31
Taxable Income 4,893,600 3,930,321 3,208,375
Taxable Income per
Limited Partnership
Interest 17.50 14.05 11.47
Cash & cash equivalents 4,014,486 2,834,883 2,427,287
Total mini-warehouse
properties, net of
accumulated
depreciatrion 44,809,932 46,050,709 48,492,489
Total Assets 50,764,405 51,105,762 52,366,414
Distributions to
Limited Partners 5,170,064 5,305,745 4,715,919
Distribution per
Limited Partnership
Interest 18.67 19.16 17.03
Properties owned on
December 31 69 69 71
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Summary of Operations. Cessation of interest income from mortgage notes
receivable, an increase in administrative expenses, a decrease in rental
revenues and a decline in interest income from short-term investments were
partially offset by decreases in property operating expenses resulting in a
decrease in net income during the six months ended June 30, 1997 as compared to
the same period in 1996.
<PAGE>
Improved market conditions in cities where many of the Partnership's
Facilities are located and increased rental income resulting from ongoing
capital improvement programs were primarily responsible for the increases in
net income generated by the Partnership in 1996, 1995 and 1994.
No material events occurred during these periods which significantly
impacted the net income of the Partnership. Further discussion of the
Partnership's operations is summarized below.
Operations
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996.
Rental revenues decreased slightly during the first six months of 1997 as
compared to the first six months of 1996. Interest income from short term
investments decreased during the six months ended June 30, 1997 as compared to
the same period in 1996 as a result of a decrease in amounts available for
investment.
The Partnership received a repayment of the mortgage notes receivable
during 1996; consequently, interest income from mortgage notes receivable
ceased during the six months ended June 30, 1997.
Higher payroll and professional fees resulted in an increase in general
and administrative expenses for the six months ended June 30, 1997 as compared
to the same period in 1996.
A reduction in maintenance and supplies expenses resulted in a decrease in
property operating expenses for the six months ended June 30, 1997 as compared
to the same period in 1996.
Fiscal 1996 Compared to Fiscal 1995. Due to an overall increase in rental
rates at the Partnership's mini-warehouse facilities, rental income increased
during 1996 as compared to 1995. Rental income increased slightly in the
Dallas/Ft. Worth, Georgia and Carolina regions and decreased slightly in the
West Texas region.
Interest income from short term investments decreased during 1996 as
compared to 1995 as a result of a decrease in amounts available for investment
primarily due to the payment of the additional 3% property management fee and
incentive management fees during the first quarter of 1996.
Interest income from mortgage notes receivable decreased during 1996 as
compared to 1995 due to the receipt of the entire balance of the outstanding
mortgage notes during 1996.
The Limited Partners received distributions equal to 10% of Adjusted
Original Capital for the period April 1995 through March 1996 and for the
period April 1996 through March 1997. In accordance with the Partnership
Agreement, the full 6% management fee was recognized for the twelve months
ended March 31, 1996 and the nine months ended December 31, 1995. The
recognition of the additional management fee was the primary reason management
fees increased for 1996 as compared to 1995.
<PAGE>
Higher payroll and supply expenses as well as professional fees and
printing and postage costs incurred in connection with the tender offers during
1996 resulted in an increase in general and administrative expenses for 1996 as
compared to 1995.
1995 Compared to 1994. Due to increases in rental rates at certain of the
Partnership's mini-warehouse facilities, particularly in the Georgia region of
the United States, rental income increased from 1994 to 1995. This increase
was partially offset by a decrease in occupancies and, correspondingly,
revenues, in the West Texas region.
Interest income on short-term investments increased from 1994 to 1995 due
to an increase in average cash balances available for investment as well as an
increase in rates during the first half of 1996.
Property operating expenses increased from 1994 to 1995 due to an increase
in maintenance and repairs and real estate taxes. Maintenance and repairs
increased due to an increase in painting and paving expenditures. Real estate
taxes increased due to an increase in values and rates at certain of the
Partnership's properties.
The Limited Partners received distributions equal to 10% of Adjusted
Original Capital for 1995 and in accordance with the Partnership Agreement, the
full 6% management fee was recognized for the nine months ended December 31,
1995 (see Note 3 of Notes to Financial Statements for additional information).
The recognition of the additional management fee for the period stated was the
primary reason property management fees increased for 1995 as compared to 1994.
Incentive management fees of $477,021 were earned by the General Partners
in 1995 due to the receipt by Limited Partners of the above mentioned
distributions. See Note 3 of Notes to Financial Statements for additional
information.
Increased accounting and asset management costs resulted in an increase in
general and administrative expenses during 1995 as compared to 1994.
Liquidity and Capital Resources
Six Months Ended June 30, 1997. The cash position of the Partnership
decreased approximately $1,593,000 from December 31, 1996, to June 30, 1997.
The Partnership's cash flow provided by operating activities of approximately
$2,670,000 in the first half of 1997 was generated primarily by the operations
of the mini-warehouse properties and interest income received on the
Partnership's short term investments, which were partially offset by
administrative expenses and the payment of additional property management fees
and Partnership incentive management fees for 1996, as discussed below. Cash
flow of approximately $232,000 was used in investing activities to make capital
improvements to the properties, which included security and roofing
expenditures. In addition, cash of approximately $4,031,000 was used in
financing activities to provide distributions to the Limited and General
Partners.
<PAGE>
Pursuant to the Partnership Agreement, the General Partners are entitled to 8%
of Net Cash Receipts available for distribution, which is subordinated to the
receipt by Limited Partners of specified distribution level. (See Note 1(c) of
Notes to Financial Statements for additional information). The General
Partners received $549,026 in January, 1997 ($480,398 as an incentive
management fee and $68,628 as their distributive share of Net Cash Receipts).
From the inception of the offering through June 30, 1997, the General Partner's
share of Net Cash Receipts totaled approximately $5,101,000, of which
$4,007,000 is subordinated. The General Partners are entitled to receive
subordinated amounts only from distributed Net Cash Proceeds.
Accounts receivable net of the related allowance for doubtful accounts
increased from December 31, 1996 to June 30, 1997 due to the level and timing
of collection efforts. The timing of collection efforts are determined by
individual state law. There have been no changes in the credit terms extended
to the Partnership's customers nor in the method used to allow for doubtful
accounts.
The General Partners' current strategy is to continue to operate the
Partnership's properties in a manner to maximize cash flow and to provide the
Limited Partners with regular quarterly distributions. A further objective is
to maximize the price at which the properties may ultimately be sold. During
the second half of 1996, the Partnership solicited and received bids from major
institutional owners of mini-warehouse facilities for a sale of all of the
Partnership's assets. The General Partners have accepted an offer from Value
Storage, Ltd. for all 69 properties for a sale price of approximately $59
million. Limited Partner approval will be required to complete such a sale.
It is expected that the offer will be presented to the Limited Partners for a
vote early in fourth quarter 1997. The General Partners cannot presently
predict whether any sale of the Partnership's assets will be consummated in the
foreseeable future.
In July 1997, the Partnership paid $1,542,433 ($5.57 per Interest) to the
Limited Partners representing the quarterly distribution for the second quarter
of 1997. Including the July 1997 distribution, the Partnership has distributed
$227.00 per $250 Interest. The General Partners believe the cash flow
generated from property operations should enable the Partnership to continue
making quarterly distributions to Limited Partners. However, the level of
future cash distributions to Limited Partners will be dependent upon the amount
of cash flow generated by the Partnership's properties, as to which there can
be no assurance. Quarterly distributions decreased for the second quarter of
1997 as compared to the first quarter of 1997. Distributions were reduced in
order maintain cash reserves. The General Partners intend to retain on behalf
of the Partnership cash reserves deemed adequate to meet working capital
requirement as they may arise.
Fiscal Year Ended December 31, 1996. The cash position of the Partnership
increased by approximately $544,000 from December 31, 1995 to December 31, 1996
as cash generated from operations and payments received on mortgage notes
receivable exceeded distributions to Limited Partners and capital expenditures.
The Partnership's cash flow provided by operating activities in 1996 of
approximately $6,100,000 was generated primarily by the operations of
mini-warehouse properties and interest income earned on the Partnership's
<PAGE>
short-term investments and mortgage notes receivable, which was partially
offset by administrative expenses. Payment of the balance on mortgage notes
receivable of approximately $1,650,000 resulted in cash flow provided from
investing activities. Additionally, $256,000 was used in investing activities
to make capital improvements to the properties, which included painting,
roofing and paving expenditures, and in financing activities to provide
distributions to the Limited and General Partners totaling approximately
$6,951,000.
Accounts receivable net of the related allowance for doubtful accounts
decreased from December 31, 1995 to December 31, 1996 due to the level and
timing of collections efforts. The timing of collection efforts are determined
by individual state law. There have been no changes in the credit terms
extended to the Partnership's customers nor in the method used to allow for
doubtful accounts.
In September, 1996, the Partnership received $508,364, $797,114 and
$323,172 in full satisfaction of the remaining mortgage notes receivable
resulting from the sale of mini-warehouse facilities in 1993, 1990 and 1989,
respectively.
Pursuant to the Partnership Agreement, the General Partners are entitled
to 8% of Net Cash Receipts available for distribution, which is subordinated to
the receipt by Limited Partners of specified distribution level. (See Note
1(c) of Notes to Financial Statements for additional information). The General
Partners received $549,026 in January, 1997 ($480,398 as its incentive
management fee and $68,628 as their distributive share of Net Cash Receipts).
From the inception of the offering through December 31, 1996, the General
Partners' share of Net Cash Receipts totaled approximately $4,838,000,
$3,748,000 of which is subordinated. The General Partners are entitled to
receive subordinated amounts only from distributed Net Cash Proceeds.
In January 1997, the Partnership paid $1,122,461 ($4.05 per Interest) to
the Limited Partners representing the quarterly Net Cash Receipts distribution
for the fourth quarter of 1996 and $1,256,265 ($4.54 per Interest) representing
the distribution of Net Cash Proceeds earned from the receipt of the balance of
mortgage notes; $647,105 ($2.34 per Interest) of which is considered a return
of original capital. The General Partners believe the cash flow generated from
property operations should enable the Partnership to continue making quarterly
distributions to Limited Partners. However, the level of future cash
distributions to limited Partners will be dependent upon the amount of cash
flow generated by the Partnership's properties, as to which there can be no
assurance. Quarterly distributions per Interest remained constant at $6.25 for
the first three quarters of 1996 and increased to $8.59 per Interest for the
fourth quarter of 1996. Quarterly distributions increased for the fourth
quarter of 1996 due to repayment of mortgage notes receivable. Limited
Partners received distributions equal to 10% of Adjusted Original Capital for
1996 (distributions paid in April, July and October 1996 and January 1997).
Including the January 1997 distribution, the Partnership has distributed to
Limited Partners $215.71 per Interest, of which $213.37 represents Net Cash
Receipts and Net Cash Proceeds and $2.34 represents return of original capital.
The General Partners intend to retain on behalf of the Partnership cash
reserves adequate to meet working capital requirements as they may arise.
<PAGE>
Inflation has several types of potentially conflicting impacts on real
estate investments. Short-term inflation can increase real estate operating
costs which may or may not be recovered through increased rents and/or sales
prices depending on general or local economic conditions. In the long term,
inflation can be expected to increase operating costs and replacement costs and
may lead to increased rental revenues and real estate values.
Financial Statements and Supplementary Data
See Index to Financial Statements on Page F-1 of this Consent
Solicitation.
The supplemental financial information specified by Item 302 of Regulation
S-K is not applicable.
The net effect of the differences between the financial statements and the tax
information is summarized as follows:
December 31, 1996 December 31, 1995
-------------------- -------------------
Financial Tax Financial Tax
Statements Return Statements Return
----------- ------- ----------- --------
Total assets $46,089,970 52,569,595 48,991,405 55,365,771
Partners' capital accounts:
General Partners $ 334,503 390,166 362,211 314,619
Limited Partners $44,118,058 51,022,418 46,997,465 53,896,444
Net Income:
General Partners $ 40,438 41,511 41,244 46,939
Limited Partners $ 4,003,355 4,109,570 4,083,144 4,646,943
Per Limited Partnership $ 14.46 14.84 14.74 16.78
Interest
<PAGE>
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
There have been no changes in or disagreements with accountants on any
matter of accounting principles, practices or financial statement disclosure.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Pages
Independent Auditors' Report F-2
Financial Statements:
Balance Sheets as of December 31, 1996 and 1995 and
(unaudited) June 30, 1997 F-3
Statements of Income, years ended December 31, 1996,
1995 and 1994 and (unaudited) six month periods ended
June 30, 1997 and 1996 F-4
Statements of Partners' Capital, years ended December 31, 1996,
1995 and 1994 and (unaudited) six month period ended
June 30, 1997) F-5
Statements of Cash Flows, years ended December 31, 1996,
1995 and 1994 and (unaudited) six month periods
ended June 30, 1997 and 1996 F-6
Notes to Financial Statements F-7 to F-10
Schedules are omitted for the reason that they are inapplicable or
equivalent information has been included elsewhere herein.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Partners
Balcor/Colonial Storage Income Fund - 85:
We have audited the accompanying balance sheets of Balcor/Colonial Storage
Income Fund - 85 (an Illinois Limited Partnership) as of December 31, 1996 and
1995, and the related statements of income, partners' capital, and cash flows
for each of the years in the three-year period ended December 31, 1996. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Balcor/Colonial Storage Income
Fund - 85 as of December 31, 1996 and 1995, and the results of its operations
and its cash flows for each of the years in the three-year period ended
December 31, 1996, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Fort Worth, Texas
March 11, 1997
<PAGE>
Balcor/Colonial Storage Income Fund - 85
(An Illinois Limited Partnership)
Balance Sheets
June 30, 1997 and December 31, 1996 and 1995
June 30, December 31,
------------ ---------------
1997 1996 1995
-------- -------- --------
(unaudited)
Assets (Note 5):
Cash and cash equivalents $2,594,428 $4,187,645 $3,643,915
Accounts receivable, net of
allowance for doubtful accounts of
$16,944, $19,068 and $18,321 at
June 30, 1997 (unaudited),
December 31, 1996 and December 31,
1995, respectively 142,743 122,698 148,300
Mortgage notes receivable (note 2) --- --- 1,649,953
Other 122,373 124,293 120,545
---------- ---------- ------------
2,859,544 4,434,636 5,562,713
Mini-warehouse facilities:
Land 14,193,743 14,193,743 14,193,743
Buildings 47,852,345 47,634,567 47,445,774
Furniture, fixtures and equipment 1,141,608 1,127,156 1,060,425
------------ ---------- ----------
63,187,696 62,955,466 62,699,942
Less accumulated depreciation 22,272,591 21,300,132 19,271,250
------------ ---------- ----------
Mini-warehouse facilities,
net of accumulated depreciation 40,915,105 41,655,334 43,428,692
----------- ------------ -----------
$43,774,649 $46,089,970 $48,991,405
----------- ----------- -----------
----------- ----------- -----------
Liabilities and Partners' Capital:
Accounts payable --- --- 1,503
Due to affiliates (note 3) 283,330 902,658 825,200
Accrued real estate taxes 401,308 302,408 372,527
Other accrued liabilities 48,932 48,932 81,290
Security deposits 38,879 43,333 54,741
Deferred income 407,739 340,078 296,468
---------- ----------- ---------
Total liabilities 1,180,188 1,637,409 1,631,729
<PAGE>
Partners' capital (note 4)
(276,918 Limited Partnership
Interests issued and
outstanding) 42,594,461 44,452,561 47,359,676
----------- ----------- ------------
$43,774,649 $46,089,970 $48,991,405
----------- ----------- -------------
----------- ----------- -------------
See accompanying notes to financial statements.
<PAGE>
Balcor/Colonial Storage Income Fund - 85
(An Illinois Limited Partnership)
Statements of Income
Six Months ended June 30, 1997 and 1996 and Years ended December 31, 1996, 1995
and 1994
June 30 December 31
----------- --------------
1997 1996 1996 1995 1994
------ ------- ------ ------ ------
(unaudited) (unaudited)
Income:
Rental $5,168,006 $5,220,318 $10,519,053 $10,316,881 $10,067,226
Interest on
short term
investments 48,838 60,963 132,236 172,464 126,665
Interest from
mortgage notes
receivable --- 78,252 115,826 158,451 167,204
---------- --------- ----------- ----------- ----------
5,216,844 5,359,533 10,767,115 10,647,796 10,361,095
---------- --------- ----------- ----------- ----------
Expenses:
Property Operating 1,406,280 1,436,351 2,832,574 2,929,624 2,759,069
Depreciation 972,459 973,699 2,028,882 2,003,642 1,967,052
Property
management fees
(note 3) 231,830 233,698 623,983 532,242 294,186
Incentive
management fees
(note 3) --- --- 480,398 477,021 ---
General and
administrative
(note 3) 433,050 365,875 757,485 580,879 521,721
---------- ---------- ---------- -------- ----------
3,043,619 3,009,623 6,723,322 6,523,408 5,545,028
---------- --------- ---------- --------- ----------
Net income $2,173,225 $2,349,910 $4,043,793 $4,124,388 $4,816,067
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
<PAGE>
Limited Partners'
share of net income
($7.77 and $8.40
for six months
ended June 30,
1997 and 1996,
respectively $2,151,493 $2,326,411 $4,003,355 $4,083,144 $4,767,906
General Partners'
share of net income 21,721 23,499 40,438 41,244 48,161
---------- ---------- ---------- ---------- ----------
$2,173,225 $2,349,910 $4,043,793 $4,124,388 $4,816,067
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
See accompanying notes to financial statements.
<PAGE>
Balcor/Colonial Storage Income Fund - 85
(An Illinois Limited Partnership)
Statements of Partners' Capital
Six Months ended June 30, 1997 and Years ended December 31, 1996, 1995 and 1994
Limited General Total
Partners Partners
---------- ----------- ----------
Balance at December 31, 1993 $49,918,204 $272,806 $50,191,010
Net income 4,767,906 48,161 4,816,067
Cash distributions ($18.67 per
Limited Partner Interest) (5,170,464) --- (5,170,064)
------------ --------- ------------
Balance at December 31, 1994 49,516,046 320,967 49,837,013
Net income 4,083,144 41,244 4,124,388
Cash distributions ($23.84 per
Limited Partner Interest) (6,601,725) --- (6,601,725)
------------ -------- ------------
Balance at December 31, 1995 46,997,465 362,211 47,359,676
Net income 4,003,355 40,438 4,043,793
Cash distributions ($24.85 per
Limited Partner Interest) (6,882,762) --- (6,882,762)
Cash distributions to General
Partners --- (68,146) ---
------------ ---------- ------------
Balance at December 31, 1996 44,118,058 334,503 44,452,561
Net Income (unaudited) 2,151,493 21,732 2,173,225
Cash distributions ($14.31 per
Limited Partner Interest)
(unaudited) (3,962,697) --- (3,962,697)
Cash distributions to General
Partners (unaudited) --- (68,628) ---
----------- --------- -------------
Balance at June 30, 1997 $42,306,854 $287,607 $42,594,461
(unaudited) ----------- --------- -------------
----------- --------- -------------
See accompanying notes to financial statements.
<PAGE>
Balcor/Colonial Storage Income Fund - 85
(An Illinois Limited Partnership)
Statements of Cash Flows
Six Months ended June 30, 1997 and 1996 and Years ended December 31, 1996, 1995
and 1994
June 30, December 31,
-------------- ----------------
1997 1996 1996 1995 1994
------ ------ ----- ----- -----
(unaudited) (unaudited)
Operating activities:
Net income $2,173,225 $2,349,910 $4,043,793 $4,124,388 $4,816,067
Adjustment to
reconcile net income
to net cash provided
by operating
activities:
Depreciation 972,459 973,699 2,028,882 2,003,642 1,967,052
Net change in:
Net accounts
receivable (20,045) 31,545 25,602 (37,310) 17,867
Other assets 1,920 33,872 (3,748) 32,367 24,414
Accounts payable --- (1,503) (1,503) (2,534) 4,037
Due to affiliates (619,328) (688,399) 77,458 634,342 75,567
Accrued real estate
taxes 98,900 (6,457) (70,119) 70,519 (7,312)
Other accrued
liabilities (32,358) (32,358) 27,096 (3,170)
Security deposits (4,454) (6,980) (11,408) (21,746) (54,669)
Deferred income 67,661 35,663 43,610 (3,340) (1,813)
---------- ---------- --------- -------- ----------
Net cash provided by
operating
activities 2,670,338 2,688,992 6,100,209 6,827,424 6,838,040
--------- --------- --------- --------- ----------
Investing activities:
Additions to
mini-warehouse
facilities, net (232,230) (86,144) (255,524) (622,402) (726,275)<PAGE>
Collection of
principal payments
on mortgage notes
receivable (note 2) --- 14,032 1,649,953 26,132 237,902
---------- ------- --------- ---------- ---------
Net cash provided
by (used in)
investing
activities (232,230) (72,112)1,394,429 (596,270) (488,373)
------------ --------- ---------- ---------- ----------
Financing activities:
Distributions to
Limited Partners (3,962,697)(3,419,938)(6,882,762)(6,601,725)(5,170,064)
Distribution to
General Partners (68,628) (68,146) (68,146) --- ---
------------ ---------- --------- ---------- ----------
Net cash used in
financing
activities (4,031,325)(3,488,084)(6,950,908)(6,601,725) (5,170,064)
----------- ---------- --------- ---------- ------------
Net change in cash
and cash
equivalents (1,593,217) (871,204) 543,730) (370,571) 1,179,603
Cash and cash
equivalents at
beginning of period 4,187,645 3,643,915 3,643,915 4,014,486 2,834,883
----------- ---------- --------- --------- -----------
Cash and cash
equivalents at end of
period $2,594,428 $2,772,711 $4,187,645 $3,643,915 $4,014,486
----------- ---------- ---------- ---------- ----------
See accompanying notes to financial statements.
<PAGE>
Balcor/Colonial Storage Income Fund - 85
(An Illinois Limited Partnership)
Notes to Financial Statement
June 30, 1997 and December 31, 1996, 1995 and 1994
(1) Summary of Significant Accounting Policies
(a) Description of Partnership
Balcor/Colonial Storage Income Fund - 85 (the "Partnership") is a
limited partnership formed in September 1983. The Partnership
Agreement provides that Balcor Storage Partners-85 (an Illinois
general partnership) and Colonial Storage 85, Inc. (a Texas
corporation) are the General Partners of the Partnership and provides
for the admission of Limited Partners through the sale of up to
320,000 Limited Partnership Interests at $250 per Interest, of which
276,918 ($69,229,500) Limited Partnership Interests were sold prior
to the termination of the offering.
The principal purpose of the Partnership is to acquire, own,
maintain, operate, lease, and hold for capital appreciation and
current income, existing mini-warehouse facilities offering storage
space for business and personal use. The Partnership acquired 69
mini-warehouse facilities from affiliates in 1985 and four
mini-warehouse facilities from non-affiliated entities in 1986. The
Partnership sold four mini-warehouse facilities prior to 1996. The
remaining properties are located in various markets within the United
States.
(b) Allocation of Net Income and Profits
The Partnership Agreement provides that net income (after a deduction
for any incentive management fees) from operations shall be allocated
99% and 1% to the Limited Partners and General Partners,
respectively.
Additionally, when a property is sold or otherwise disposed of, the
General Partners will be allocated profits equal to the greater of 1%
of total profits or the amount of Net Cash Proceeds distributable to
the General Partners from the sale (in excess of subordinated Net
Cash Receipts, note 1(c)). The balance of the profits will be
allocated to the Limited Partners.
(c) Cash Distributions
Net Cash Receipts available for distribution from operations shall be
distributed 92% to the Limited Partners and 8% to the General
Partners, 7% as their partnership incentive management fee and 1% as
their distributable share from operations. Distributions from
operations to the General Partners are currently subordinated to
<PAGE>
receipt by the Limited Partners of a return equal to 10% on Adjusted
Original Capital.
Net Cash Proceeds from sales or refinancings will be distributed
first to the Limited Partners until they have received any
deficiencies in the aforementioned minimum cash distributions from
operations. Distributions to the Limited Partners will then be made
in an amount equal to total Original Capital plus any deficiency in a
cumulative distribution of 12% of Adjusted Original Capital for the
period commencing approximately one year following the termination of
the offering. If the receipt of any portion of the General Partners'
8% share of Net Cash Receipts from operations (approximately
$3,748,000 has been deferred as of December 31, 1996) or the property
management fee (note 3) has been deferred as a result of
subordination, thereafter, available Net Cash Proceeds will be
distributed to the General Partners to the extent of such deferred
amounts. Thereafter, remaining Net Cash Proceeds will be distributed
85% to the Limited Partners and 15% to the General Partners.
(d) Cash and Cash Equivalents
The Partnership considers all highly liquid investments with
maturities at the date of purchase of three months or less to be cash
equivalents.
(e) Mini-Warehouse Facilities
Costs associated with the appraisal and acquisition of mini-warehouse
facilities are capitalized.
The buildings, furniture, fixtures, and equipment are depreciated
using the straight-line method over their estimated useful live
ranging from 7 to 25 years.
Maintenance and repairs are charged to expense when incurred.
Expenditures from improvements are charged to the related asset
account.
The Partnership adopted the provisions of SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," on January 1, 1996. This Statement requires that
long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs
to sell. Adoption of this Statement had no impact on the
Partnership's financial position, results of operations, or
liquidity.
<PAGE>
When properties are disposed of, the related costs and accumulated
depreciation will be removed from the respective accounts, and any
gain or loss on disposition will be recognized in accordance with
generally accepted accounting principles.
(f) Income Taxes
Taxable income or loss of the Partnership is includible in the income
tax returns of the individual partners; therefore, no provision for
income taxes has been made in the accompanying financial statements.
The tax bases of the Partnership's assets exceeded the amounts
recorded in the Financial Statements at December 31, 1996 and 1995,
by $6,479,625 and $6,374,366, respectively.
(g) Use of Estimates
Management of the Partnership has made a number of estimates and
assumptions relating to the reporting of assets and liabilities to
prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from
those estimates.
(h) Fair Value of Financial Instruments
In accordance with the reporting requirements of Statement on
Financial Accounting Standards No. 107, "Disclosures about Fair Value
of Financial Instruments," the Partnership calculates the fair value
of its financial instruments and 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 disclosures is made.
(i) Interim Financial Information
The financial statements and disclosures included herein for the six
months ended June 30, 1997 and 1996 have been prepared by the
Partnership, without audit, in accordance with generally accepted
accounting principles and reflect all adjustments which, in the
opinion of management, are necessary for a fair statement of the
financial condition, results of operations and cash flows for the
periods presented. Results for interim periods should not be
considered as indicative of results for a full year.
<PAGE>
(2) Mortgage Notes Receivable
The Partnership had three notes from the sale of mini-warehouse facilities
in 1993, 1990 and 1989. Two notes bore interest rates of 10% per annum with
monthly principal and interest payments based on a 25-year amortization
schedule and final balloon payments in 1996 and 1998, respectively. The other
note bore an interest rate of 8.5% per annum with monthly principal and
interest payments based on a 25-year amortization schedule and a final balloon
payment in 1998. In September, 1996 the notes were repaid in full in the
amount of $1,628,650.
(3) Transactions With Affiliates
The Partnership has an agreement with Colonial Storage Management 85,
Inc., an affiliate of Colonial Storage 85, Inc., a General Partner, to
supervise and direct the business and affairs associated with the
mini-warehouse facilities for a fee of 6% of the gross revenues of the
facilities. One-half of this property management fee is subordinated to
receipt by the Limited Partners of a Special Distribution of 8% during the
first twelve month period after termination of the offering, 9% during the
second twelve month period and 10% during each twelve month period thereafter.
Any deferred portion of the property management fee will be paid only from
distributed Net Cash Proceeds. As of June 30, 1997 and December 31, 1996
property management fees of $2,068,872 and $1,991,890 were deferred,
respectively.
The Limited Partners received distributions equal to 10% of Adjusted
Original Capital for the period April 1995 through March 1996 and for the
period April 1996 through March 1997. Consequently, in January 1997 and
February 1996, the Partnership paid Colonial Storage Management 85, Inc.
$234,056 and $228,837, respectively, representing the amount necessary to meet
the 6% property management fee. For the same periods mentioned above the
General Partners received $549,026 ($480,397 as incentive management fees and
$68,628 as their distributive share of Net Cash Receipts) in January 1997, and
$545,167 ($477,021 as incentive management fees and $68,146 as their
distributive share of Net Cash Receipts) in February 1996. Incentive
management fees have been accrued at December 31, 1996 and 1995, while the
General Partners distributive share of Net Cash Receipts are deducted from
Partners' Capital when paid.
In connection with the sales of the mini-warehouse facilities made to
date, the General Partners may each receive a real estate commission of up to
$36,975 which have been subordinated in accordance with the Partnership
Agreement. Certain general and administrative expenses are reimbursed to
affiliates of the General Partners to cover administrative requirements of the
Partnership.
Commissions, fees, and expenses paid and payable by the Partnership to
affiliates for the six month period ended June 30, 1997 and the years ended
December 31, 1996, 1995 and 1994, are:
<PAGE>
June 30, 1997 December 31,
--------------- -------------
(unaudited) 1996
---------------- -------------
Paid Payable Paid Payable
------- -------- ------- -------
Property
Management
Fees $464,140(A) 27,645 615,969 259,955
General and
administrative
expenses $185,813 181,775 419,375 88,395
Real estate
commissions --- 73,910(C) --- 73,910
Incentive
management
fees $480,398(B) --- 477,021 480,398
December 31,
-----------------
1995 1994
--------------- -----------------
Paid Payable Paid Payable
-------- ------- ------- ---------
Property Management Fees $354,727 251,941 246,188 74,426
General and
administrative expenses 392,417 22,328 343,434 45,522
Real estate commissions --- 73,910 --- 73,910
Incentive management fees --- 477,021 --- ---
__________________
(A) Includes payment of the subordinated 3% property management fee since
Limited Partners received distributions equal to 10% of Adjusted Original
Capital for the twelve month period ended March 31, 1997.
(B) Represents fees paid to the General Partners due to the receipt by the
Limited Partners of the Special Distribution of 10% referred to above.
(C) These commissions payable to the General Partners have been subordinated
in accordance with the Partnership Agreement.
(4) Subsequent Event
In January 1997, the Partnership paid $1,122,461 ($4.05 per Interest) to the
Limited Partners representing the quarterly Net Cash Receipts distribution for
the fourth quarter of 1996 and $1,256,265 ($4.54 per Interest) representing the
distribution of Available Net Cash Proceeds from the receipt of the balance of
<PAGE>
mortgage notes, $647,105 ($2.34 per Interest) of which is considered a return
of capital. In July, 1997, the Partnership paid $1,541,161 (unaudited) to the
Limited Partners representing the quarterly distribution for the second quarter
of 1997.
(5) Events Subsequent to Independent Auditors Report (unaudited)
On September 4, 1997, the Partnership entered into an agreement to sell
substantially all of the assets of the Partnership to Value Storage, Ltd. for
$59,750,000. Management estimates that upon closing of the sale it will
realize a gain of approximately $16,300,000 to $17,000,000. The sale must be
approved by a majority of the partnership interest, and if approved, would lead
to liquidation of the Partnership. This liquidation would lead to a final
distribution of approximately $208 to $211 per limited partner interest.
<PAGE>
APPENDIX A
<PAGE>
Ballot Form
Balcor/Colonial Storage Income Fund - 85
c/o MAVRICC Management Systems, Inc.
1845 Maxwell, Suite 101
Troy, Michigan 48084-4510
This consent is being solicited on behalf of Balcor/Colonial Storage Income
Fund - 85 (the "Partnership") by Balcor Storage Partners - 85, one of the
General Partners of the Partnership.
The undersigned, a Limited Partner of the Partnership, hereby votes the number
of Units held of record by the undersigned on October 1, 1997, as follows, by
checking the appropriate blank below in blue or black ink:
Proposal to approve or reject the sale of substantially all of
the assets of the Partnership as described in the Consent
Solicitation of Limited Partners dated November 4, 1997.
For (Approve) Against (Reject)
- ------ -------
<PAGE>
__________________________________ _________________________ ---------
Signature of Custodian or Trustee Signature Date
Required for all Custodial Accounts)
___________________________
Print Name
_________________________ __________________
TAX ID.: Signature, if held jointly Date
UNITS: ___________________________
Print Name
When limited partnership interest(s) are held by joint tenants, both
joint tenants should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such.
When the limited partnership interest(s) are held of record by a
Tax-exempt Limited Partner, the signature of the custodian or trustee
is also required. If a corporation, please have signed in full
corporate name by the president or other authorized officer. If a
partnership, please have signed in partnership name by an authorized
person. In the absence of specified instructions, signed consents
will be counted as a vote FOR the proposal set forth above.
Please mark, sign, date and return this consent form promptly, using
the enclosed envelope.
<PAGE>
ROBERT A. STANGER & CO., INC. 1129 Broad Street
FINANCIAL AND MANAGEMENT CONSULTANTS Shrewsbury, NJ
07702-4314
(732) 389-3600
FAX (732) 389-1751
(732) 544-0779
Balcor Storage Partners - 85
As General Partner of
Balcor/Colonial Storage Income Fund - 85
Bannockburn Lake Office Plaza
2355 Waukegan Road, Suite A200
Bannockburn, IL 60015
Gentlemen:
You have advised us that Balcor/Colonial Storage Income Fund - 85 (the
"Partnership") is entering into a transaction (the "Sale") in which sixty-nine
properties owned by the Partnership (the "Properties") will be sold to Value
Storage, Ltd. (the "Buyer"), for an all cash net purchase price of $59,000,000
(the "Consideration") pursuant to an agreement dated September 4, 1997, as
amended (the "Agreement"). We have also been advised that the limited partners
(the "Limited Partners") of the Partnership will be asked to approve the Sale
pursuant to a proxy/consent solicitation statement (the "Proxy").
Balcor Storage Partners - 85, in its capacity as a general partner of the
Partnership (the "Balcor General Partner"), has requested on behalf of the
Partnership that Robert A. Stanger & Co., Inc. ("Stanger") provide its opinion
as to the fairness to the Limited Partners of the Partnership, from a financial
point of view, of the Consideration to be received by the Partnership in the
Sale.
Stanger founded in 1978, has provided information, research, investment
banking and consulting services to clients located throughout the United
States, including major New York Stock Exchange member firms and insurance
companies and over seventy companies engaged in the management and operation of
partnerships and real estate investment trusts. The investment banking
activities of Stanger include financial advisory services, asset and securities
valuations, industry and company research and analysis, litigation support and
expert witness services, and due diligence investigations in connection with
both publicly registered and privately placed securities transactions.
Stanger, as part of its investment banking business, is regularly engaged
in the valuation of businesses and their securities in connection with mergers,
acquisitions, and reorganizations and for estate, tax, corporate and other
purposes. In particular, Stanger's valuation practice principally involves
partnerships, partnership securities and the assets typically owned through
partnerships including, but not limited to real estate, oil and gas reserves,
cable television systems, and equipment leasing assets.
In the course of our review to render this opinion, we have, among other
things:
Reviewed the Agreement between the Partnership and the Buyer dated
September 4, 1997;
<PAGE>
Reviewed the Partnership's annual reports filed with the Securities and
Exchange Commission ("SEC") on Form 10K for the years ended December 31,
1994, 1995 and 1996 and the quarterly reports filed with the SEC on Form
10Q for the 1997 quarters ended March 31 and June 30;
Reviewed summary historical operating statements for each of the
Properties for 1994, 1995, 1996 and operating budgets for 1997;
Reviewed unit dimensions reports (including actual rental rate and market
rental rate information), occupancy trend information, market rental rate
information, property tax information and capital expenditure information
provided by Colonial Storage Centers (the "Property Manager");
Performed site inspections of 30 of the 69 Properties owned by the
Partnership and observed capital expenditure requirements at such
properties;
Interviewed key management personnel of the Balcor General Partner and
the Property Manager regarding current and projected performance of the
Properties, conditions in local markets and the physical condition of the
Properties;
Interviewed representatives of Insignia Mortgage & Investment Company
("Insignia"), the selling agent for the Properties, and reviewed the bid
process, negotiations and the Agreement;
Reviewed information regarding purchases and sales of self-storage
properties and other information relating to acquisition criteria for
self-storage properties; and
Conducted such other studies, analyses, inquiries and investigations as
Stanger deemed appropriate.
In rendering this opinion, we have relied upon and assumed, without
independent verification, the accuracy and completeness of all financial and
other information contained in the Proxy Statement that was furnished or
otherwise communicated to us by the Partnership, the Balcor General Partner,
the Property Manager and Insignia. We have not performed an independent
appraisal of the assets and liabilities of the Partnership. We have also
relied on the assurances of the Balcor General Partner that any financial
statements, projections, budgets, or value estimates contained in the Proxy
Statement or otherwise provided to us, were reasonably prepared on bases
consistent with actual historical experience and reflect the best currently
available estimates and good faith judgments; that no material changes have
occurred in the value of the Properties or the information between the date of
such information provided and the date of this letter, and that the Balcor
General Partner, the Partnership, the Property Manager and Insignia are not
aware of any information or facts that would cause the information supplied to
us to be incomplete or misleading in any material respect.
We have not been requested to, and therefore did not: (i) select the
method of determining the Consideration offered in the Sale, (ii) make any
<PAGE>
recommendation to the Limited Partners of the Partnership with respect to
whether to approve or reject the Sale or (iii) express any opinion as to the
business decision to effect the Sale, alternatives to the Sale, or tax factors
resulting from the Sale. Our opinion is based on business, economic, real
estate and securities markets and other conditions as of the date of our
analysis and addresses the Sale in the context of information available as of
the date of our analysis. Events occurring after that date may materially
effect the assumptions used in preparing this opinion.
Based upon and subject to the foregoing, and in reliance thereon, it is
our opinion that as of the date of this letter, the Consideration to be
received by the Partnership in the Sale is fair to the Limited Partners of the
Partnership from a financial point of view.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. We have
advised the Partnership and the Balcor General Partner that our entire analysis
must be considered as a whole and that selecting portions of our analysis and
the factors considered by us, without considering all analyses and factors,
could create an incomplete view of the evaluation process underlying this
opinion.
Yours truly,
/s/Robert A. Stanger & Co.,Inc.
- -------------------------------
Robert A. Stanger & Co., Inc.
Shrewsbury, NJ
October 29, 1997
<PAGE>
