UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1997
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
------------- -------------
Commission file number 0-14348
-------
BALCOR EQUITY PENSION INVESTORS-III
A REAL ESTATE LIMITED PARTNERSHIP
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Illinois 36-3354308
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Waukegan Road
Bannockburn, Illinois 60015
- ---------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 267-1600
--------------
Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
-----------------------------
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
<PAGE>
PART I
Item 1. Business
- ----------------
Balcor Equity Pension Investors-III A Real Estate Limited Partnership (the
"Registrant") is a limited partnership formed in 1985 under the laws of the
State of Illinois. The Registrant raised $170,801,000 from sales of Limited
Partnership Interests. The Registrant has retained cash reserves from the sale
of its real estate investments for contingencies which exist or may arise. The
Registrant's operations currently consist of interest income earned on
short-term investments and the payment of administrative expenses.
The Registrant originally funded four first mortgage loans, two of which were
jointly funded with affiliates, and acquired five real property investments and
a minority joint venture interest in another real property investment and has
since disposed of all of these investments. The Partnership Agreement provides
that the proceeds of any sale or refinancing of the Registrant's properties
will not be reinvested in new acquisitions.
The Partnership Agreement provides for the dissolution of the Registrant upon
the occurrence of certain events, including the disposition of all interests in
real estate. During 1996, the Registrant sold two properties and the three
properties in which the Registrant held minority joint venture interests.
During 1997, the Registrant sold its remaining five properties, the Ammendale
Technology Park - Phase II office buildings, the Bingham Farms Office Plaza -
Phase IV, the Belmont Apartments, the Erindale Centre shopping center and the
Arborland Consumer Mall. The Registrant has retained a portion of the cash
from the property sales to satisfy obligations of the Registrant as well as
establish a reserve for contingencies. The timing of the termination of the
Registrant and final distribution of cash will depend upon the nature and
extent of liabilities and contingencies which exist or may arise. Such
contingencies may include legal and other fees and costs stemming from
litigation involving the Registrant including, but not limited to, the lawsuit
discussed in "Item 3. Legal Proceedings". In the absence of any such
contingencies, the reserves will be paid within twelve months of the last
property being sold. In the event a contingency continues to exist or arises,
reserves may be held by the Registrant for a longer period of time.
During 1997, the Registrant sold the Ammendale Technology Park - Phase II
office buildings, the Bingham Farms Office Plaza - Phase IV, the Belmont
Apartments, the Erindale Centre shopping center and the Arborland Consumer
Mall. See "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources" for additional
information.
The Registrant no longer has an ownership interest in any real estate
investment. The General Partner is not aware of any material potential
liability relating to environmental issues or conditions affecting real estate
formerly owned by the Registrant.
The officers and employees of Balcor Equity Partners-III, the General Partner
of the Registrant, and its affiliates perform services for the Registrant. The
Registrant currently has no employees engaged in its operations.
<PAGE>
Other Information
- -----------------
In October 1997, the Registrant sold the Arborland Consumer Mall to a third
party. At closing, the purchaser received a credit against the sale price of
$1,625,000 to remedy certain environmental issues at the property, principally
asbestos and underground storage tank removal and soil and ground water
contamination resulting from a dry cleaning facility located on the property.
The General Partner believes that the Registrant will have no further liability
relating to the environmental issues at the property.
Item 2. Properties
- ------------------
As of December 31, 1997, the Registrant did not own any properties.
In the opinion of the General Partner, the Registrant has obtained adequate
insurance coverage.
See Notes to Financial Statements for other information regarding former real
estate property investments.
Item 3. Legal Proceedings
- -------------------------
Dee vs. Walton Street Capital Acquisition II, LLC
- -------------------------------------------------
On June 14, 1996, a proposed class and derivative action complaint was filed,
Dee vs. Walton Street Capital Acquisition II, LLC (Circuit Court of Cook
County, Illinois, County Department, Chancery Division ("Chancery Court"), Case
No. 96 CH 06283) (the "Dee Case"), naming the General Partner and the general
partners (the "Balcor Defendants") of nine other limited partnerships sponsored
by The Balcor Company (together with the Registrant, the "Affiliated
Partnerships""), as well as the Affiliated Partnerships, as defendants.
Additional defendants were Insignia Management Group ("Insignia") and Walton
Street Capital Acquisition II, LLC ("Walton") and certain of their affiliates
and principals (collectively, the "Walton and Insignia Defendants"). The
complaint alleged, among other things, that the tender offers for the purchase
of limited partnership interests in the Affiliated Partnerships made by a joint
venture consisting of affiliates of Insignia and Walton were coercive and
unfair.
On July 1, 1996, another proposed class action complaint was filed in the
Chancery Court, Anderson vs. Balcor Mortgage Advisors (Case No. 96 CH 06884)
(the "Anderson Case"). An amended complaint consolidating the Dee and Anderson
Cases (the "Dee/Anderson Case") was filed on July 25, 1996.
The complaint seeks to assert class and derivative claims against the Walton
and Insignia Defendants and alleges that, in connection with the tender offers,
the Walton and Insignia Defendants misused the Balcor Defendants' and
Insignia's fiduciary positions and knowledge in breach of the Walton and
Insignia Defendants' fiduciary duty and in violation of the Illinois Securities
<PAGE>
and Consumer Fraud Acts. The plaintiffs amended their complaint on October 8,
1996, adding additional claims. The plaintiffs requested certification as a
class and derivative action, unspecified compensatory damages and rescission of
the tender offers. Each of the defendants filed motions to dismiss the
complaint for failure to state a cause of action. On January 7, 1997, the
Chancery Court denied the plaintiffs' motion for leave to amend the complaint
and dismissed the matter for failure to state a cause of action, with
prejudice.
On February 3, 1997, the plaintiffs filed a Notice of Appeal of the Chancery
Court's order to the Appellate Court of Illinois. Plaintiff's brief was filed
with the Appellate Court in September 1997. Defendants filed their reply briefs
in January 1998. Oral arguments before the Appellate Court were held on
March 18, 1998. The Appellate Court is expected to issue its opinion in the
spring of 1998, although there can be no assurances on such date.
The Balcor Defendants intend to vigorously contest this action. No class has
been certified as of this date. The Registrant believes it has meritorious
defenses to contest the claims. It is not determinable at this time whether or
not an unfavorable decision in this action would have a material adverse impact
on the Registrant.
Klein, et al. vs. Lehman Brothers, Inc., et al.
- ----------------------------------------------
On August 30, 1996, a proposed class action complaint was filed, Lenore Klein,
et al. vs. Lehman Brothers, Inc., et al. (Superior Court of New Jersey, Law
Division, Union County, Docket No. Unn-L-5162-96). The complaint was amended on
each of October 18, 1996, December 5, 1997, and January 15, 1998. The
Registrant, additional limited partnerships which were sponsored by The Balcor
Company, American Express Company, Lehman Brothers, Inc., Smith Barney, Inc.
and various other entities were originally the named defendants in the action.
The December 5, 1997 and January 15, 1998 Amended Complaints, among other
changes, no longer name the Registrant as a defendant and all claims relating
to the Registrant have been eliminated from the Amended Complaint. As a result,
this case will be deleted from all future reports of the Registrant.
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
No matters were submitted to a vote of the Limited Partners of the Registrant
during 1997.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
- -------------------------------------------------------------------------
Matters
- -------
There has not been an established public market for Limited Partnership
Interests and it is not anticipated that one will develop. For information
regarding previous distributions, see "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources".
As of December 31, 1997, the number of record holders of Limited Partnership
Interests of the Registrant was 30,080.
Item 6. Selected Financial Data
- -------------------------------
Year ended December 31,
----------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
Total income $6,589,569 $20,284,354 $17,804,510 $16,938,456 $16,634,266
Provision for
investment
property
writedown 2,255,673 3,777,000 None None 2,700,000
(Loss) income
before gain on
on sales of proper-
ties and seller's
participation
in joint venture (1,672,693) 6,033,505 6,150,471 4,820,354 2,288,740
Net income 4,251,167 20,642,345 6,150,471 4,820,354 2,288,740
Net income
per Limited
Partnership
Interest-
Basic and Diluted 5.32 29.23 7.63 5.88 2.17
Total assets 8,945,676 71,472,288 103,241,269 105,268,922 107,200,193
Distributions per
Taxable Limited
Partnership
Interest 5.90 16.35 7.90 7.00 7.50
Distributions per
Tax-exempt
Limited
Partnership
Interest (A) 102.83 78.24 10.51 9.32 9.98
(A) These amounts include distributions of original capital of $94.98 and
$56.50 per Tax-exempt Limited Partnership Interest for 1997 and 1996,
respectively.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
- -----------------------------------------------------------------------
Results of Operations
- ---------------------
Operations
- ----------
Summary of Operations
- ---------------------
Balcor Equity Pension Investors - III A Real Estate Limited Partnership (the
"Partnership") sold two properties and the three properties in which it held
minority joint venture interests in 1996 and sold its remaining five properties
in 1997. Primarily as a result of lower net gains resulting from the property
sales in 1997 as compared to 1996 and lower income from property operations in
1997 due to the property sales, net income decreased during 1997 as compared to
1996. The Partnership also recognized provisions for investment property
writedowns in each of 1997 and 1996. Primarily as a result of the net gains
recognized in connection with the property sales in 1996, net income increased
during 1996 as compared to 1995. Further discussion of the Partnership's
operations is summarized below.
1997 Compared to 1996
- ---------------------
The Partnership sold the Westlake Meadows and Green Trails apartment complexes
during 1996. In addition, the Partnership sold the Ammendale Technology Park -
Phase II office buildings, the Belmont Apartments, the Erindale Centre shopping
center, the Bingham Farms Office Plaza - Phase IV and the Arborland Consumer
Mall during 1997. As a result, rental income, service income, depreciation,
property operating expenses, real estate taxes, and property management fees
decreased during 1997 when compared to 1996.
The Partnership participated in the income generated by the operations of the
1275 K Street, Westech 360 and Perimeter 400 office buildings, in which it held
minority joint venture interests, prior to their sales in 1996. As a result of
these sales, the Partnership's participation in income of joint ventures with
affiliates ceased. The Partnership's participation in 1996 included its share
of the gains from the sales of the Westech 360 and Perimeter 400 office
buildings and its share of the loss from the sale of the 1275 K Street office
building.
The Partnership had higher average cash balances available for investment
during 1996 due to the timing of the proceeds received from the 1996 property
sales and the subsequent distribution to Partners. As a result, interest
income on short-term investments decreased during 1997 as compared to 1996.
The Partnership recognized other income during 1997 in connection with refunds
of prior years' insurance premiums relating to the Partnership's properties.
In connection with the sales of the Ammendale Technology Park - Phase II office
buildings and the Bingham Farms Office Plaza - Phase IV, the Partnership wrote
<PAGE>
off the remaining unamortized deferred leasing commissions on the properties.
As a result, amortization of deferred expenses increased during 1997 as
compared to 1996.
The Partnership incurred higher consulting, investor processing, legal, postage
and printing costs in connection with its response to a tender offer and
related litigation during 1996. As a result, administrative expenses decreased
during 1997 as compared to 1996.
Provisions were charged to income when the General Partner believed an
impairment had occurred to the value of its properties. Determinations of fair
value were made periodically on the basis of assessments of property operations
and the property's estimated sales price less closing costs. Determinations of
fair value represented estimations based on many variables which affect the
value of real estate, including economic and demographic conditions. During
1997, the Partnership recognized provisions for investment property writedown
of $605,157 related to the Bingham Farms Office Plaza - Phase IV and $1,650,516
related to the Arborland Consumer Mall based on the properties' sales prices
less closing costs. During 1996, the Partnership recognized a provision for
investment property writedown of $3,777,000 to provide for a change in the
estimate of the fair value of the Arborland Consumer Mall.
The Partnership sold the Westlake Meadows and Green Trails apartment complexes
in 1996 and recognized gains totaling $14,608,840 on these property sales. The
Partnership sold the Ammendale Technology Park - Phase II office buildings, the
Belmont Apartments and the Erindale Centre shopping center in 1997, and
recognized gains totaling $6,086,360 on these property sales. See Note 11 of
Notes to Financial Statements for additional information.
The Arborland Consumer Mall was owned by a joint venture between the
Partnership and the seller. The seller received a distribution of $162,500
during 1997 pursuant to the joint venture agreement. The amount is recognized
as seller's participation in income from joint venture on the income statement.
1996 Compared to 1995
- ---------------------
The Partnership sold Westlake Meadows and Green Trails apartment complexes in
June and July 1996, respectively, which was the primary reason for the
decreases in rental income, depreciation, real estate taxes, and property
management fees during 1996 when compared to 1995.
Participation in income of joint ventures with affiliates represents the
Partnership's share of the income or loss of the 1275 K Street, Westech 360 and
Perimeter 400 office buildings. As a result of the Partnership's share of the
gains recognized on the sales of the Westech 360 and Perimeter 400 office
buildings totaling approximately $7,014,000, participation in income from joint
ventures with affiliates increased during 1996 as compared to 1995. This
increase was partially offset by the Partnership's share of a loss recognized
on the sale of the 1275 K Street office building of approximately $1,925,000.
Higher average cash balances due to the investment of the proceeds from the
property sales prior to distribution to Partners, resulted in an increase in
interest income on short-term investments during 1996 as compared to 1995.
<PAGE>
Property operating expense decreased approximately $500,000 during 1996 when
compared to 1995 due to a decrease of approximately $566,000 due to the sales
of the Westlake Meadows and Green Trails apartment complexes. In addition,
there was a decrease in property operating expense at the Bingham Farms Office
Plaza - Phase IV due to structural repairs in 1995 of approximately $197,000.
These decreases were partially offset by an increase in property operating
expense at the Arborland Consumer Mall due to leasing costs of approximately
$350,000 incurred in 1996.
The Partnership incurred higher consulting, investor processing, printing and
postage costs in connection with a response to a tender offer during 1996. As a
result, administrative expenses increased during 1996 as compared to 1995.
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership decreased by approximately $26,885,000 as
of December 31, 1997 when compared to December 31, 1996 primarily due to
distributions of Net Cash Proceeds made to Tax-exempt Limited Partners in 1997,
which were partially offset by the proceeds received from the sale of the
Partnership's remaining five properties in 1997. Cash flow of approximately
$1,919,000 was provided by the Partnership's operating activities consisting
primarily of cash flow from property operations and interest income on
short-term investments, which were partially offset by the payment of certain
expenses on sold properties and administrative expenses. Investing activities
consisted of net proceeds received from the sales of the Ammendale Technology
Park - Phase II office buildings, the Belmont Apartments, the Erindale Centre
shopping center, the Bingham Farms Office Plaza - Phase IV, and the Arborland
Consumer Mall totaling approximately $36,382,000 and net distributions received
from joint ventures with affiliates of approximately $2,072,000, less the
payment of leasing costs related to the Bingham Farms Office Plaza - Phase IV
of approximately $1,019,000. Financing activities consisted of distributions to
the Partners of approximately $66,076,000 and a distribution to the
seller/joint venture partner on the Arborland Consumer Mall of approximately
$163,000. In January 1998, the Partnership made a distribution to Tax-exempt
Limited Partners of approximately $5,618,000 consisting of Net Cash Proceeds
from the sale of the Arborland Consumer Mall, the release of an escrow from the
sale of the Ammendale Technology Park - Phase II office buildings and remaining
available Net Cash Receipts reserves.
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. During 1996, the Partnership sold two properties and the three
properties in which the Partnership held minority joint venture interests.
During 1997, the Partnership sold its remaining five properties, the Ammendale
Technology Park - Phase II office buildings, the Bingham Farms Office Plaza -
Phase IV, the Belmont Apartments, the Erindale Centre shopping center and the
Arborland Consumer Mall. The Partnership has retained a portion of the cash
from the property sales to satisfy obligations of the Partnership as well as
establish a reserve for contingencies. The timing of the termination of the
Partnership and final distribution of cash will depend upon the nature and
extent of liabilities and contingencies which exist or may arise. Such
contingencies may include legal and other fees and costs stemming from
litigation involving the Partnership, including but not limited to, the lawsuit
<PAGE>
discussed in "Item 3. Legal Proceedings". In the absence of any such
contingencies, the reserves will be paid within twelve months of the last
property being sold. In the event a contingency continues to exist or arises,
reserves may be held by the Partnership for a longer period of time.
In February 1997, the Partnership sold the Ammendale Technology Park - Phase II
office buildings in an all cash sale for $5,768,000. From the proceeds of the
sale, the Partnership paid $289,417 in selling costs. Pursuant to the terms of
the sale, $170,904 of the proceeds was held in escrow until November 1997. The
escrow proceeds were released in full in December 1997. The Partnership
distributed the available proceeds to the Tax-exempt Limited Partners in April
1997 and January 1998.
In July 1997, the Partnership sold the Bingham Farms Office Plaza - Phase IV in
an all cash sale for $12,700,000. In connection with the sale, leasing costs in
the amount of $3,000,412 were incurred related to the renewal of the lease of
the largest tenant in the building. Of these costs, $1,018,942 was paid by the
Partnership prior to the sale of the property and the purchaser received a
credit for $1,981,470. From the proceeds of the sale, the Partnership paid
$393,328 in selling costs. The Partnership distributed the available proceeds
to the Tax-exempt Limited Partners in October 1997.
In August 1997, the Partnership sold the Belmont Apartments in an all cash sale
for $7,676,000. From the proceeds of the sale, the Partnership paid $244,852 in
selling costs. The Partnership distributed the available proceeds to the
Tax-exempt Limited Partners in October 1997.
In August 1997, the Partnership sold the Erindale Centre shopping center in an
all cash sale for $8,250,000. From the proceeds of the sale, the Partnership
paid $247,674 in selling costs. In addition, $25,000 of the sale proceeds was
placed in escrow at closing and was unavailable for distribution. This amount
is expected to be released in 1998. The Partnership distributed the available
proceeds to the Tax-exempt Limited Partners in October 1997.
The Arborland Consumer Mall was owned by a joint venture consisting of the
Partnership and the seller of the property. In October 1997, the joint venture
sold the property in an all cash sale for $7,000,000. In connection with the
sale, the purchaser received a credit of $1,625,000 to remedy certain
environmental issues at the property. From the proceeds of the sale, the joint
venture paid $230,303 in selling costs. Pursuant to the sale agreement,
$250,000 of the proceeds was retained by the Partnership until December 1997,
at which time the funds were released in full. In addition, $109,526 related
to certain tenant reimbursements was placed in escrow at closing and will be
held in escrow until such time as payment for these reimbursements are received
from the tenants in 1998. The Partnership is entitled to receive all of the
Net Cash Proceeds pursuant to the joint venture agreement. The Partnership
distributed the available proceeds to the Tax-exempt Limited Partners in
January 1998.
The 1275 K Street office building was owned by a joint venture consisting of
the Partnership and an affiliate. During December 1996, the joint venture sold
the property. Pursuant to the sale agreement, $2,287,500 of the sale proceeds
was retained by the joint venture and was unavailable for distribution until
<PAGE>
September 1997, at which time the funds were released in full. The
Partnership's share of these proceeds was $903,105. These proceeds were
distributed to Tax-exempt Limited Partners in October 1997.
The Westech 360 office building was owned by a joint venture consisting of the
Partnership and an affiliate. During December 1996, the joint venture sold the
property. Pursuant to the sale agreement, $1,395,000 of the sale proceeds was
retained by the joint venture and was unavailable for distribution until
September 1997, at which time the funds were released in full. The
Partnership's share of these proceeds was $604,035. These proceeds were
distributed to Tax-exempt Limited Partners in October 1997.
The Perimeter 400 Office Center was owned by a joint venture consisting of the
Partnership and three affiliates. During December 1996, the joint venture sold
the property. Pursuant to the sale agreement, $1,750,000 of the sale proceeds
was retained by the joint venture and was unavailable for distribution until
September 1997, at which time the funds were released in full. The
Partnership's share of these proceeds was $384,125. These proceeds were
distributed to Tax-exempt Limited Partners in October 1997.
The Partnership made distributions totaling $5.90, $16.35 and $7.90 per Taxable
Interest and $102.83, $78.24 and $10.51 per Tax-exempt Interest in 1997, 1996
and 1995, respectively. Distributions to Taxable Limited Partners were
comprised of Net Cash Receipts in all three years. Distributions to Tax-exempt
Limited Partners were comprised of $7.85 of Net Cash Receipts and $94.98 of Net
Cash Proceeds in 1997, $21.74 of Net Cash Receipts and $56.50 of Net Cash
Proceeds in 1996 and $10.51 of Net Cash Receipts in 1995.
In January 1998, the Partnership made a distribution of $5,617,898 ($8.86 per
Interest) to the holders of Tax-exempt Limited Partnership Interests. This
amount represents a distribution of Net Cash Proceeds of $8.49 per Tax-exempt
Interest from the sale of the Arborland Consumer Mall and the release of an
escrow from the sale of the Ammendale Technology Park - Phase II office
buildings and a distribution of remaining available Net Cash Receipts reserves
of $0.37 per Tax-exempt Interest. The Taxable Limited Partners will receive a
distribution of $0.28 per Interest from remaining available Net Cash Receipts
reserves in April 1998. In January 1998, the Partnership also paid $19,550 to
the General Partner as its distributive share of Net Cash Receipts distributed
for the fourth quarter of 1997 and made a contribution to the Repurchase Fund
of $6,517.
Including the January 1998 distribution, Limited Partners have received Net
Cash Receipts distributions of $103.70 per $250 Taxable Interest and $138.36
per Tax-exempt Interest, and Net Cash Proceeds of $159.97 per $250 Tax-exempt
Interest. Distributions to Tax-exempt Limited Partners total $298.33 per
Interest. In accordance with the Partnership Agreement, Net Cash Proceeds from
property sales are allocated to the Tax-exempt Limited Partners. Taxable and
Tax-exempt Limited Partners received quarterly distributions from Net Cash
Receipts. No additional distributions are anticipated to be made prior to the
termination of the Partnership. However, after paying final partnership
expenses, any remaining cash reserves will be distributed in accordance with
the Partnership Agreement. Taxable Limited Partners will not receive aggregate
distributions from the Partnership equal to their original investment. However,
Taxable Limited Partners will receive a distribution from amounts allocated to
the Repurchase Fund.
<PAGE>
In February 1997, the Partnership discontinued the repurchase of Interests from
Limited Partners. As of December 31, 1997, there were 19,585 Interests and
cash of $2,597,196 in the Repurchase Fund.
Item 8. Financial Statements and Supplementary Data
- ---------------------------------------------------
See Index to Financial Statements in this Form 10-K.
The supplemental financial information specified by Item 302 of Regulation S-K
is not applicable.
The net effect of the differences between the financial statements and the tax
returns is summarized as follows:
December 31, 1997 December 31, 1996
----------------------- -----------------------
Financial Tax Financial Tax
Statements Returns Statements Returns
----------- ---------- ----------- ----------
Total assets $8,945,676 $26,018,174 $71,472,288 $97,441,511
Partners' (deficit)
capital accounts:
General Partner (566,735) (3,328,530) (597,954) (109,310)
Limited Partners 9,423,550 29,281,653 71,279,934 113,590,656
Net income (loss):
General Partner 615,824 (2,634,615) 669,960 933,735
Limited Partners 3,635,343 (18,817,276) 19,972,385 11,919,036
Per Limited Part-
nership Interest 5.32(A) (B) 29.23(A) (B)
(A) Amount represents basic and diluted net income per Limited Partnership
Interest.
(B) The net income (loss) is ($34.66) per Tax-exempt Interest and $64.30 per
Taxable Interest for 1997 and $17.53 per Tax-exempt Interest and $16.35 per
Taxable Interest for 1996.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- -----------------------------------------------------------------------
Financial Disclosure
- --------------------
There have been no changes in or disagreements with accountants on any matter
of accounting principles, practices or financial statement disclosure.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
- -----------------------------------------------------------
(a) Neither the Registrant nor Balcor Equity Partners - III, its General
Partner, has a Board of Directors.
(b, c & e) The names, ages and business experiences of the executive officers
and significant employees of the General Partner of the Registrant are as
follows:
TITLE OFFICERS
Chairman, President and Chief Thomas E. Meador
Executive Officer
Senior Vice President Alexander J. Darragh
Senior Vice President John K. Powell, Jr.
Senior Managing Director, Chief Jayne A. Kosik
Financial Officer, Treasurer
and Assistant Secretary
Thomas E. Meador (age 50) joined Balcor in July 1979. He is Chairman,
President and Chief Executive Officer and has responsibility for all ongoing
day-to-day activities at Balcor. He is a member of the board of directors of
The Balcor Company. He is also Senior Vice President of American Express
Company and is responsible for its real estate operations worldwide. Prior to
joining Balcor, Mr. Meador was employed at the Harris Trust and Savings Bank in
the commercial real estate division where he was involved in various lending
activities. Mr. Meador received his M.B.A. degree from the Indiana University
Graduate School of Business.
Alexander J. Darragh (age 43) joined Balcor in September 1988 and is
responsible for real estate advisory services for Balcor and American Express
Company. Mr. Darragh received masters' degrees in Urban Geography from Queen's
University and in Urban Planning from Northwestern University.
John K. Powell Jr. (age 47) joined Balcor in September 1985 and is responsible
for portfolio and asset management matters relating to Balcor's partnerships.
Mr. Powell also has supervisory responsibility for Balcor's risk management
function. He is a member of the board of directors of The Balcor Company. He
received a Master of Planning degree from the University of Virginia. Mr.
Powell has been designated a Certified Real Estate Financier by the National
Society for Real Estate Finance and is a full member of the Urban Land
Institute.
Jayne A. Kosik (age 40) joined Balcor in August 1982 and, as Chief Financial
Officer, is responsible for Balcor's financial, human resources and treasury
functions. From June 1989 until October 1996, Ms. Kosik had supervisory
responsibility for accounting functions relating to Balcor's public and private
partnerships. She is also Treasurer and a Senior Managing Director of The
Balcor Company. Ms. Kosik is a Certified Public Accountant.
(d) There is no family relationship between any of the foregoing officers.
<PAGE>
(f) None of the foregoing officers or employees are currently involved in any
material legal proceedings nor were any such proceedings terminated during the
fourth quarter of 1997.
Item 11. Executive Compensation
- -------------------------------
The Registrant paid $5,298 in 1997 with respect to one of the executive
officers and directors of Balcor Equity Partners-III, the General Partner. The
Registrant has not paid and does not propose to pay any remuneration to the
remaining executive officers and directors of the General Partner. The other
officers receive compensation from The Balcor Company (but not from the
Registrant) for services performed for various affiliated entities, which may
include services performed for the Registrant. However, the General Partner
believes that any such compensation attributable to services performed for the
Registrant is immaterial to the Registrant. See Note 10 of Notes to Financial
Statements for the information relating to transactions with affiliates.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -----------------------------------------------------------------------
(a) The following entity is the sole Limited Partner which owns beneficially
more than 5% of the outstanding Limited Partnership Interests of the
Registrant:
Name and Amount and
Address of Nature of Percent
Beneficial Beneficial of
Title of Class Owner Ownership Class
- -----------------------------------------------------------
Limited Walton 31,041.45 4.54%
Partnership Street Limited
Interests Capital Partnership
Acquisition Interests
Co. II, L.C.C.
Chicago,
Illinois
Limited Beattie 16,714.63 2.45%
Partnership Place Limited
Interests Greenville, Partnership
South Interests
Carolina
While Walton Street Capital Acquisition Co. II, L.C.C. and Beattie Place
individually own less than 5% of the Interests, for purposes of this Item 12,
Walton Street Capital Acquisition Co. II, L.C.C. is an affiliate of Beattie
Place and, collectively, they own 6.99% of the Interests.
(b) Balcor Equity Partners-III (principally through the Repurchase Fund) and
its officers and partners own as a group the following Limited Partnership
Interests of the Registrant:
<PAGE>
Amount
Beneficially
Title of Class Owned Percent of Class
------------------- --------------- ----------------
Limited Partnership
Interest 20,148 Interests 2.95%
Relatives of the officers and affiliates of the partners of the General Partner
own 12 additional interests.
(c) The Registrant is not aware of any arrangements, the operations of which
may result in a change of control of the Registrant.
Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------
(a & b) See Note 4 of Notes to Financial Statements for information relating to
the Partnership Agreement and the allocation of distributions and profits and
losses.
See Note 10 of Notes to Financial Statements for information relating to
transactions with affiliates.
(c) No management person is indebted to the Registrant.
(d) The Registrant has no outstanding agreements with any promoters.
<PAGE>
PART IV
Item 14. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a)
(1 & 2) See Index to Financial Statements in this Form 10-K.
(3) Exhibits:
(3) The Amended and Restated Agreement and Certificate of Limited Partnership
previously filed as Exhibit 3 to Amendment No. 2 to Registrant's Registration
Statement on Form S-11 dated September 25, 1985 (Registration Statement No.
2-97579) is incorporated herein by reference.
(4) Form of Subscription Agreement set forth as Exhibit 4.1 to Amendment No. 3
to the Registrant's Registration Statement on Form S-11 dated September 25,
1985 (Registration Statement No. 2-97579) and Form of Confirmation regarding
Interests in the Registrant set forth as Exhibit 4.2 to the Registrant's Report
on Form 10-Q for the quarter ended June 30, 1992 (Commission File No. 0-14348)
are incorporated herein by reference.
(10) Material Contracts:
(a) Agreement of Sale and attachment thereto relating to the sale of the Green
Trails Apartment, Lisle, Illinois previously filed as Exhibit (2) to the
Registrant's Current Report on Form 8-K dated June 28, 1996 is incorporated
herein by reference.
(b) Agreement of Sale and attachment thereto relating to the sale of the 1275
K Street Office Building, Washington, D.C., previously filed as Exhibit (2) to
the Registrant's Current Report on Form 8-K dated November 29, 1996 is
incorporated herein by reference.
(c) (i) Agreement of Sale and attachment thereto relating to the sale of
Bingham Farms Office Plaza - Phase IV, Bingham Farms, Michigan, previously
filed as Exhibit (10)(d) to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997 is incorporated herein by reference.
(c) (ii) First Letter Amendment to Agreement of Sale relating to the sale of
Bingham Farms Office Plaza - Phase IV, Bingham Farms, Michigan, previously
filed as Exhibit (99)(b)(i) to the Registrant's Current Report on Form 8-K
dated June 17, 1997, is incorporated herein by reference.
(c) (iii) Second Amendment to Agreement of Sale relating to the sale of Bingham
Farms Office Plaza - Phase IV, Bingham Farms, Michigan, previously filed as
Exhibit (99)(b)(ii) to the Registrant's Current Report on Form 8-K dated June
17, 1997, is incorporated herein by reference.
(d) Agreement of Sale and attachment thereto relating to the sale of Belmont
Apartments, Renton, Washington, previously filed as Exhibit (2) to the
Registrant's Current Report on Form 8-K dated May 16, 1997, is incorporated
herein by reference.
<PAGE>
(e)(i) Agreement of Sale and attachment thereto relating to the sale of the
Erindale Centre Shopping Center, Colorado Springs, Colorado, previously filed
as Exhibit (2)(i) to the Registrant's Current Report on Form 8-K dated June 2,
1997, is incorporated herein by reference.
(e)(ii) First Amendment to Agreement of Sale relating to the sale of the
Erindale Centre Shopping Center, Colorado Springs, Colorado, previously filed
as Exhibit (2)(ii) to the Registrant's Current Report on Form 8-K dated June 2,
1997, is incorporated herein by reference.
(e)(iii) Second Amendment to Agreement of Sale relating to the sale of the
Erindale Centre Shopping Center, Colorado Springs, Colorado, previously filed
as Exhibit (99)(a) to the Registrant's Current Report on Form 8-K dated June
17, 1997, is incorporated herein by reference.
(f)(i) Agreement of Sale and attachment thereto relating to the sale of
Arborland Consumer Mall, Ann Arbor, Michigan, previously filed as Exhibit
(2)(a) to the Registrant's Current Report on Form 8-K dated June 17, 1997, is
incorporated herein by reference.
(f)(ii) First Amendment to Agreement of Sale and Escrow Agreement relating to
the sale of the Arborland Consumer Mall, Ann Arbor, Michigan, previously filed
as Exhibit (2)(b) to the Registrant's Current Report on Form 8-K dated June 17,
1997, is incorporated herein by reference.
(27)Financial Data Schedule of the Registrant for 1997 is attached hereto.
(b) Reports on Form 8-K: A Current Report on Form 8-K dated January 15, 1998
was filed reporting the status of proposed class action litigation to which the
Registrant was a party.
(c) Exhibits: See Item 14(a)(3) above.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of l934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BALCOR EQUITY PENSION INVESTORS-III
A REAL ESTATE LIMITED PARTNERSHIP
By:/S/ Jayne A. Kosik
--------------------------------
Jayne A. Kosik
Senior Managing Director and Chief
Financial Officer (Principal
Accounting Officer) of Balcor
Equity Partners-III, the General
Partner
Date:March 25, 1998
---------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------------------- ------------------------------- ------------
President and Chief Executive
Officer (Principal Executive
Officer) of Balcor Equity
/s/Thomas E. Meador Partners-III, the General Partner March 25, 1998
- -------------------- --------------
Thomas E. Meador
Senior Managing Director and Chief
Financial Officer (Principal
Accounting Officer) of Balcor
Equity Partners-III, the General
/s/Jayne A. Kosik Partner March 25, 1998
- -------------------- --------------
Jayne A. Kosik
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants
Financial Statements:
Balance Sheets, December 31, 1997 and 1996
Statements of Partners' Capital, for the years ended December 31, 1997, 1996
and 1995
Statements of Income and Expenses, for the years ended December 31, 1997, 1996
and 1995
Statements of Cash Flows, for the years ended December 31, 1997, 1996 and 1995
Notes to Financial Statements
Financial Statement Schedules are omitted for the reason that they are
inapplicable or equivalent information has been included elsewhere herein.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Balcor Equity Pension Investors-III:
We have audited the financial statements of Balcor Equity Pension Investors-III
(An Illinois Limited Partnership) as listed in the Index of this Form 10-K.
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 Equity Pension
Investors-III at December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
As described in Note 2 to the financial statements, the partnership agreement
provides for the dissolution of the Partnership upon the disposition of all its
real estate interests. As of December 31, 1997, the Partnership has disposed
of all of its remaining real estate interests. Upon the resolution of the
litigation described in Note 13 to the financial statements, the Partnership
intends to cease operations and dissolve.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 23, 1998
<PAGE>
BALCOR EQUITY PENSION INVESTORS - III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
December 31, 1997 and 1996
ASSETS
1997 1996
-------------- --------------
Cash and cash equivalents $ 8,638,754 $ 35,523,271
Accounts and accrued interest receivable 172,396 1,202,372
Escrow deposits - restricted 134,526
Prepaid expenses 469,833
Deferred expenses, net of accumulated
amortization of $384,914 in 1996 131,377
-------------- --------------
8,945,676 37,326,853
-------------- --------------
Investment in real estate:
Land 7,925,685
Buildings and improvements 49,748,165
--------------
57,673,850
Less accumulated depreciation 25,600,858
--------------
Investment in real estate, net of
accumulated depreciation 32,072,992
--------------
Investment in joint ventures with
affiliates 2,072,443
-------------- --------------
$ 8,945,676 $ 71,472,288
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 44,712 $ 389,388
Due to affiliates 44,149 119,215
Accrued liabilities, principally
real estate taxes 106,625
Security deposits 175,080
-------------- --------------
Total liabilities 88,861 790,308
-------------- --------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS - III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
December 31, 1997 and 1996
(Continued)
1997 1996
-------------- --------------
Commitments and Contingencies
Limited Partners' capital (683,204
Interests issued and outstanding) 9,423,550 71,279,934
General Partner's deficit (566,735) (597,954)
-------------- --------------
Total partners' capital 8,856,815 70,681,980
-------------- --------------
$ 8,945,676 $ 71,472,288
============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS - III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
for the years ended December 31, 1997, 1996 and 1995
Partners' Capital (Deficit) Accounts
-----------------------------------------------
General Limited
Total Partner Partners
--------------- -------------- ----------------
Balance at December 31,
1994 $ 103,759,132 $ 198,093 $ 103,561,039
Cash distributions to:
Limited Partners (A) (7,052,246) (7,052,246)
General Partner (783,584) (783,584)
Net income for the year
ended December 31, 1995 6,150,471 938,472 5,211,999
--------------- -------------- ----------------
Balance at December 31,
1995 102,073,773 352,981 101,720,792
Cash distributions to:
Limited Partners (A) (50,413,243) (50,413,243)
General Partner (1,620,895) (1,620,895)
Net income for the year
ended December 31, 1996 20,642,345 669,960 19,972,385
--------------- -------------- ----------------
Balance at December 31,
1996 70,681,980 (597,954) 71,279,934
Cash distributions to:
Limited Partners (A) (65,491,727) (65,491,727)
General Partner (584,605) (584,605)
Net income for the year
ended December 31, 1997 4,251,167 615,824 3,635,343
--------------- -------------- ----------------
Balance at December 31,
1997 $ 8,856,815 $ (566,735) $ 9,423,550
=============== ============== ================
(A) Summary of cash distributions paid per Interest:
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS - III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
for the years ended December 31, 1997, 1996 and 1995
(Continued)
1997 1996 1995
--------------- -------------- ----------------
Taxable
- -------------
First Quarter $ 2.80 $ 1.75 $ 1.75
Second Quarter 2.60 2.80 1.75
Third Quarter 0.50 2.80 2.65
Fourth Quarter None 9.00 1.75
Tax-Exempt
- -------------
First Quarter 41.50 2.33 2.33
Second Quarter 18.46 3.72 2.33
Third Quarter 0.67 3.72 3.52
Fourth Quarter 42.20 68.47 2.33
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the years ended December 31, 1997, 1996 and 1995
1997 1996 1995
--------------- -------------- ----------------
Income:
Rental $ 4,268,955 $ 10,311,282 $ 12,986,774
Service 1,481,271 2,290,095 2,445,471
Participation in income
of joint ventures
with affiliates 6,501,382 1,757,775
Interest on short-term
investments 831,590 1,181,595 614,490
Other income 7,753
--------------- -------------- ----------------
Total income 6,589,569 20,284,354 17,804,510
--------------- -------------- ----------------
Expenses:
Depreciation 1,141,476 2,487,264 2,979,544
Amortization of deferred
expenses 131,377 73,059 73,060
Property operating 2,639,204 4,961,218 5,461,616
Real estate taxes 999,035 1,379,433 1,696,995
Property management fees 264,904 585,864 715,113
Administrative 830,593 987,011 727,711
Provisions for investment
property writedowns 2,255,673 3,777,000
--------------- -------------- ----------------
Total expenses 8,262,262 14,250,849 11,654,039
--------------- -------------- ----------------
(Loss) income before gain on
sales of properties and
seller's participation
in joint venture (1,672,693) 6,033,505 6,150,471
Gain on sales of properties 6,086,360 14,608,840
Seller's participation in
income from joint venture (162,500)
--------------- -------------- ----------------
Net income $ 4,251,167 $ 20,642,345 $ 6,150,471
=============== ============== ================
Net income allocated to
General Partner $ 615,824 $ 669,960 $ 938,472
=============== ============== ================
Net income allocated to
Limited Partners $ 3,635,343 $ 19,972,385 $ 5,211,999
=============== ============== ================
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the years ended December 31, 1997, 1996 and 1995
(Continued)
1997 1996 1995
--------------- -------------- ----------------
Net income per Limited
Partnership Interest
(683,204 issued and
outstanding) - Basic
and Diluted $ 5.32 $ 29.23 $ 7.63
=============== ============== ================
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS - III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1997, 1996 and 1995
1997 1996 1995
--------------- -------------- ----------------
Operating activities:
Net income $ 4,251,167 $ 20,642,345 $ 6,150,471
Adjustments to recon-
cile net income to
net cash provided by
operating activities:
Gain on sales of
properties (6,086,360) (14,608,840)
Participation in
income of joint
ventures with
affiliates (6,501,382) (1,757,775)
Seller's participation
in income from
joint venture 162,500
Depreciation of
properties 1,141,476 2,487,264 2,979,544
Amortization of
deferred expenses 131,377 73,059 73,060
Provisions for
investment property
writedowns 2,255,673 3,777,000
Funding of escrows in
connection with the
sale of real estate (134,526)
Net change in:
Accounts and
accrued interest
receivable 429,165 572,749 556,064
Prepaid expenses 469,833 61,716 (42,519)
Accounts payable (344,676) 100,197 (298,209)
Due to affiliates (75,066) 89,242 (73,000)
Accrued liabilities (106,625) 3,074 5,199
Security deposits (175,080) (154,019) 23,716
--------------- -------------- ----------------
Net cash provided by
operating activities 1,918,858 6,542,405 7,616,551
--------------- -------------- ----------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS - III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1997, 1996 and 1995
(Continued)
1997 1996 1995
--------------- -------------- ----------------
Investing activities:
Capital contribution to
joint venture with
an affiliate $ (39,705) $ (62,975) $ (17,347)
Distributions from joint
ventures with affil-
iates 2,112,148 27,509,153 2,060,484
Improvements to properties (359,039) (405,806)
Proceeds from sales of
properties 37,787,530 43,850,000
Payment of selling costs (1,405,574) (1,202,530)
Payment of leasing costs (1,018,942)
--------------- -------------- ----------------
Net cash provided by
investing activities 37,435,457 69,734,609 1,637,331
--------------- -------------- ----------------
Financing activities:
Distributions to
Limited Partners (65,491,727) (50,413,243) (7,052,246)
Distributions to
General Partner (584,605) (1,620,895) (783,584)
Distributions to joint
venture partner - seller (162,500)
--------------- -------------- ----------------
Cash used in financing
activities (66,238,832) (52,034,138) (7,835,830)
--------------- -------------- ----------------
Net change in cash and
cash equivalents (26,884,517) 24,242,876 1,418,052
Cash and cash equivalents
at beginning of year 35,523,271 11,280,395 9,862,343
--------------- -------------- ----------------
Cash and cash equivalents
at end of year $ 8,638,754 $ 35,523,271 $ 11,280,395
=============== ============== ================
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS-III
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Nature of the Partnership's Business:
Balcor Equity Pension Investors-III A Real Estate Limited Partnership (the
"Partnership") has retained cash reserves from the sale of its real estate
investments for contingencies which exist or may arise. The Partnership's
operations currently consist of interest income earned on short-term
investments and the payment of administrative expenses.
2. Partnership Termination:
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. During 1996, the Partnership sold two properties and the three
properties in which the Partnership held minority joint venture interests.
During 1997, the Partnership sold its remaining five properties, the Ammendale
Technology Park - Phase II office buildings, the Bingham Farms Office Plaza -
Phase IV, the Belmont Apartments, the Erindale Centre shopping center and the
Arborland Consumer Mall. The Partnership has retained a portion of the cash
from the property sales to satisfy obligations of the Partnership as well as
establish a reserve for contingencies. The timing of the termination of the
Partnership and final distribution of cash will depend upon the nature and
extent of liabilities and contingencies which exist or may arise. Such
contingencies may include legal and other fees and costs stemming from
litigation involving the Partnership including, but not limited to, the lawsuit
discussed in Note 13 of Notes to Financial Statements. In the absence of any
such contingencies, the reserves will be paid within twelve months of the last
property being sold. In the event a contingency continues to exist or arises,
reserves may be held by the Partnership for a longer period of time.
3. Accounting Policies:
(a) The preparation of the financial statements in conformity with generally
accepted accounting principles requires the General Partner to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could vary from those estimates.
(b) Depreciation expense was computed using straight-line and accelerated
methods. Rates used in the determination of depreciation were based upon the
following estimated useful lives:
Years
-----
Buildings and improvements 20 to 31
Furniture and fixtures 4 to 5
<PAGE>
Maintenance and repairs were charged to expense when incurred. Expenditures for
improvements were charged to the related asset account.
As properties were sold, the related costs and accumulated depreciation were
removed from the respective accounts. Any gain or loss on disposition was
recognized in accordance with generally accepted accounting principles.
(c) Effective January 1, 1995 the Partnership adopted Statement of Financial
Accounting Standards, No. 121 (SFAS 121), "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of". Under SFAS 121, the
Partnership recorded its investments in real estate at the lower of cost or
fair value, and periodically assessed, but not less than on an annual basis,
possible impairment to the value of its properties. The General Partner
estimated the fair value of its properties based on the current sales price
less estimated closing costs. In the event the General Partner determined an
impairment in value had occurred, and the carrying amount of the real estate
asset would not be recovered, a provision was recorded to reduce the carrying
basis of the property to its estimated fair value. The General Partner
considered the methods referred to above to result in a reasonable measurement
of a property's fair value, unless other factors affecting the property's value
indicated otherwise.
(d) Investment in joint ventures with affiliates represented the Partnership's
39.48%, 43.3% and 21.95% interests, under the equity method of accounting, in
three joint ventures with affiliated partnerships. Under the equity method of
accounting, the Partnership recorded its initial investment at cost and
adjusted its investment account for additional capital contributions,
distributions and its share of joint venture income or loss.
(e) Deferred expenses consisted of leasing commissions which were amortized
over the life of each respective lease. Upon sale of the property, the
remaining unamortized balance was written off to amortization expense.
(f) Revenue was recognized on an accrual basis in accordance with generally
accepted accounting principles. Income from operating leases with significant
abatements and/or scheduled rent increases was recognized on a straight line
basis over the respective lease term. Service income included reimbursements
for operating costs such as real estate taxes, maintenance and insurance and
was recognized as revenue in the period the applicable costs were incurred.
(g) The Financial Accounting Standard Board's Statement No. 107, "Disclosures
About Fair Value of Financial Instruments", requires disclosure of fair value
information about financial instruments for which it is practicable to estimate
that value. Statement No. 107 does not apply to all balance sheet items and
excludes certain financial instruments and all non-financial instruments such
as real estate and investment in joint ventures from its disclosure
requirements.
(i) Cash and cash equivalents include all unrestricted highly liquid
investments with an original maturity of three months or less. Cash is held or
invested in one financial institution.
(j) The Partnership is not liable for Federal income taxes and each partner
recognizes his proportionate share of the Partnership income or loss in his tax
<PAGE>
return; therefore, no provision for income taxes is made in the financial
statements of the Partnership.
(k) For financial statement purposes, in previous years partners were allocated
income and loss in accordance with the provisions in the Partnership Agreement.
In order for the capital accounts of the General Partner and Limited Partners
to appropriately reflect their remaining economic interests as provided for in
the Partnership Agreement, the income allocations between the partners have
been adjusted for financial statement purposes in 1997.
(l) Statement of Financial Accounting Standards, No. 128, "Earnings per Share"
was adopted by the Partnership for the year-ended December 31, 1997 and has
been applied to all prior earnings periods presented in the financial
statements. Since the Partnership has no dilutive securities, there is no
difference between basic and diluted net income per Limited Partnership
Interest.
4. Partnership Agreement:
The Partnership was organized in April 1985. The Partnership Agreement provides
for Balcor Equity Partners-III to be the General Partner and for the admission
of Limited Partners through the sale of up to 1,000,000 Limited Partnership
Interests at $250 per Interest, 683,204 of which were sold on or prior to
August 1, 1986, the termination date of the offering.
The Partnership Agreement provides for different allocations of profits and
losses and cash distributions to Limited Partners depending on whether the
investor originally acquiring the Interest was a taxable or tax-exempt entity.
"Operating Income" of the Partnership is allocated 10% to the General Partner
and 90% to the Limited Partners; however, certain components are specially
allocated as described in the Partnership Agreement. "Operating Losses" and
certain other components are allocated 1% to the General Partner and 99% to the
Limited Partners pursuant to terms set forth in the Partnership Agreement. For
financial statement purposes, in previous years partners were allocated income
and loss in accordance with the provisions in the Partnership Agreement. In
order for the capital accounts of the General Partner and Limited Partners to
appropriately reflect their remaining economic interests as provided for in the
Partnership Agreement, income allocations between the partners have been
adjusted for financial statement purposes in 1997.
"Net Cash Receipts" available for distribution were distributed as follows: 90%
to Limited Partners, 7.5% to the General Partner as its distributive share from
Partnership operations and 2.5% of such "Net Cash Receipts" was paid to the
General Partner for allocation to the Repurchase Fund.
At the sole discretion of the General Partner and subject to certain
limitations as set forth in the Partnership Agreement, amounts placed in the
Repurchase Fund were available to repurchase Interests from Limited Partners.
All repurchases of Interests were made at 90% of the then current valuation of
such Limited Partnership Interests at the previous quarter end less any
distributions made after the previous quarter end. Distributions of "Net Cash
Receipts" and "Net Cash Proceeds" pertaining to such repurchased Interests were
paid to the Repurchase Fund and were utilized to repurchase additional
<PAGE>
Interests. In February 1997, the Partnership discontinued the repurchase of
Interests from Limited Partners. As of December 31, 1997, there were 19,585
Interests and cash of $2,597,196 in the Repurchase Fund.
An amount not to exceed the dollars originally allocated to the Repurchase Fund
is obligated to be returned by the Repurchase Fund to the Partnership at
liquidation which will be accounted for as a capital contribution from the
General Partner.
The Partnership has disposed of all of its real property investments. The "Net
Cash Proceeds" resulting therefrom, which were available for distribution, were
distributed principally to the Tax-exempt Limited Partners in accordance with
the Partnership Agreement. The General Partner will not receive any
distributions of Net Cash Proceeds in accordance with the provisions of the
Partnership Agreement.
5. Investment Property Writedowns:
(a) During 1996, the Partnership determined that an impairment to the asset
value of the Arborland Consumer Mall had occurred. The property was written
down to its estimated sales price less closing costs, and a $3,777,000
provision for investment property writedown was recognized. The Partnership
sold the Arborland Consumer Mall in October 1997. During 1997, the Partnership
recognized an additional provision for investment property writedown of
$1,650,516.
(b) In 1997, the Partnership sold the Bingham Farms Office Plaza - Phase IV.
In connection with the sale, the property was written down to its sales price,
less closing costs, and a $605,157 provision for investment property writedown
was recognized. See Note 11 of Notes to Financial Statements for additional
information.
6. Management Agreements:
The Partnership's properties were under management agreements with third party
management companies prior to the sale of the properties. These management
agreements provided for annual fees of 3% to 6% of gross operating receipts.
7. Seller's Participation in Joint Venture:
The Arborland Consumer Mall was owned by a joint venture between the
Partnership and the seller. The property was sold in 1997. See Note 11 of
Notes to Financial Statements for additional information. Prior to the sale,
the seller retained an interest in the property through its interest in the
joint venture. All assets, liabilities, income and expenses of the joint
venture were included in the financial statements of the Partnership with the
appropriate deduction from income or loss, if any, for the seller's
participation in the joint venture. The seller shared in the cash flow of the
property only after the Partnership received a preferential distribution. The
Partnership made a distribution to the seller of $162,500 during 1997 pursuant
to the joint venture agreement, and as a result, the seller was allocated
$162,500 of income. The seller did not receive any proceeds from the sale of
the property and was not allocated any loss on sale for financial statement
purposes. The Partnership made no distribution to the seller in 1996 or 1995.
<PAGE>
8. Investment in Joint Ventures with Affiliates:
(a) In 1986, the Partnership and an affiliate acquired the 1275 K Street Office
Building. Profits and losses, all capital contributions and distributions were
allocated in accordance with the participants' original funding percentages.
The Partnership's sharing percentage was 39.48%. In December 1996, the joint
venture sold the property in an all cash sale for $28,300,000. From the
proceeds of the sale, the joint venture paid $911,470 in selling costs.
Pursuant to the terms of the sale, $2,287,500 of the sale proceeds was retained
by the joint venture and was unavailable for distribution until September 1997,
at which time the funds were released in full. The Partnership's share of these
proceeds was $903,105. For financial statement purposes, the joint venture
recognized a loss of $5,028,903 from the sale of this property in 1996, of
which $1,924,848 was the Partnership's share. In addition, during 1997, 1996
and 1995, the Partnership received distributions from this joint venture
totaling $1,123,988, $11,236,549 and $1,240,391, respectively.
(b) In 1988, the Partnership and an affiliate acquired the Westech 360 Office
Building. Profits and losses, all capital contributions and distributions were
allocated in accordance with the participants' original funding percentages.
The Partnership's sharing percentage was 43.30%. In December 1996, the joint
venture sold the property in an all cash sale for $18,330,000. From the
proceeds of the sale, the joint venture paid $477,653 in selling costs.
Pursuant to the terms of the sale, $1,395,000 of the sale proceeds was retained
by the joint venture and was unavailable for distribution until September 1997,
at which time the funds were released in full. The Partnership's share of these
proceeds was $604,035. For financial statement purposes, the joint venture
recognized a gain of $9,904,922 from the sale of this property in 1996, of
which $4,288,415 was the Partnership's share. In addition, during 1997, 1996
and 1995, the Partnership received distributions from this joint venture
totaling $604,035, $7,560,143 and $357,562, respectively, and made a
contribution of $39,705 in 1997.
(c) In 1990, the Partnership and three affiliates acquired the Perimeter 400
Office Center. Profits and losses, all capital contributions and distributions
were allocated in accordance with the participants' original funding
percentages. The Partnership's sharing percentage was 21.95%. In December 1996,
the joint venture sold the property in an all cash sale for $40,700,000. From
the proceeds of the sale, the joint venture paid $882,765 in selling costs.
Pursuant to the terms of the sale, $1,750,000 of the sale proceeds was retained
by the joint venture and was unavailable for distribution until September 1997,
at which time the funds were released in full. The Partnership's share of
these proceeds was $384,125. The joint venture recognized a gain of $12,420,982
from the sale of this property in 1996, of which $2,725,820 was the
Partnership's share. During 1995, the Partnership recognized income of $145,968
as its share of the recovery related to the change in the estimate of the fair
value of the property. This amount was included in the Partnership's
participation in income of joint venture with affiliates. In addition, during
1997, 1996 and 1995, the Partnership received distributions from this joint
venture totaling $384,125, $8,712,461 and $462,531, respectively; and made
contributions of $62,975 and $17,347 in 1996 and 1995, respectively.
The following combined information has been summarized from the financial
statements of the joint ventures:
<PAGE>
1996 1995
---------- ----------
Net investment in real estate
as of December 31 None $67,113,953
Total liabilities as of
December 31 $200,899 650,669
Total income 14,019,918 14,167,508
(Loss) income before net
gain on sales (6,559,548) 2,424,601
Net gain on sales 17,297,001 None
Net income 10,737,453 2,424,601
9. Tax Accounting:
The Partnership keeps its books in accordance with the Internal Revenue Code,
rules and regulations promulgated thereunder and existing interpretations
thereof. The accompanying financial statements, which are prepared in
accordance with generally accepted accounting principles ("GAAP"), differ from
the tax returns due to the different treatment of various items as specified in
the Internal Revenue Code. The net effect of these accounting differences is
that the net income for 1997 in the financial statements is $25,703,058 greater
than the tax loss for the same period resulting primarily from higher gains on
the sales of properties for GAAP reporting as a result of lower amounts
capitalized to the basis of the properties for GAAP reporting in prior years
and provisions for investment property writedowns taken for GAAP reporting in
prior years.
10. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates are:
Year Ended Year Ended Year Ended
12/31/97 12/31/96 12/31/95
-------------- -------------- --------------
Paid Payable Paid Payable Paid Payable
------ ------- ------ ------- ------ -------
Reimbursement of expenses
to the General Partner,
at cost:
Accounting $56,979 $9,696 $ 19,529$ 14,768 $ 56,355 $ 4,277
Data processing 12,795 1,249 5,553 2,236 48,537 2,297
Investment processing None None 8,340 None 46,869 8,340
Investor communica-
tions None None None None 9,607 None
Legal 26,081 4,175 10,885 8,231 23,554 1,908
Portfolio management 193,690 27,828 118,728 89,781 104,228 13,139
Other 12,778 1,201 5,554 4,200 7,597 12
The Partnership participated in an insurance deductible program with other
affiliated partnerships in which the program paid claims up to the amount of
the deductible under the master insurance policies for its properties. The
program was administered by an affiliate of the General Partner which received
no fee for administering the program; however, the General Partner was
reimbursed for program expenses. The Partnership paid premiums to the
deductible insurance program of $15,835 and $63,162 for 1996 and 1995,
respectively.
<PAGE>
11. Property Sales:
(a) In February 1997, the Partnership sold the Ammendale Technology Park -
Phase II office buildings in an all cash sale for $5,768,000. From the proceeds
of the sale, the Partnership paid $289,417 in selling costs. The basis of the
property was $4,708,238 which is net of accumulated depreciation of $426,041.
For financial statement purposes, the Partnership recognized a gain of $770,345
from the sale of the property.
(b) In July 1997, the Partnership sold the Bingham Farms Office Plaza - Phase
IV in an all cash sale for $12,700,000. In connection with the sale, leasing
costs in the amount of $3,000,412 were incurred related to the renewal of the
lease of the largest tenant in the building. Of these costs, $1,018,942 was
paid by the Partnership prior to the sale of the property and the purchaser
received a credit for $1,981,470. From the proceeds of the sale, the
Partnership paid $393,328 in selling costs. In connection with the sale, the
Partnership wrote off $600,811 of accounts receivable related to rental
abatements and scheduled rent increases. The basis of the property was
$10,325,202 which is net of accumulated depreciation of $6,597,332. For
financial statement purposes, the Partnership recognized a $605,157 provision
for investment property writedown during 1997 and no gain or loss was
recognized on the sale of the property.
(c) In August 1997, the Partnership sold the Belmont Apartments in an all cash
sale for $7,676,000. From the proceeds of the sale, the Partnership paid
$244,852 in selling costs. The basis of the property was $5,284,309 which is
net of accumulated depreciation of $3,411,823. For financial statement
purposes, the Partnership recognized a gain of $2,146,839 from the sale of the
property.
(d) In August 1997, the Partnership sold the Erindale Centre shopping center in
an all cash sale for $8,250,000. From the proceeds of the sale, the Partnership
paid $247,674 in selling costs. The basis of the property was $4,833,150 which
is net of accumulated depreciation of $5,674,448. For financial statement
purposes, the Partnership recognized a gain of $3,169,176 from the sale of the
property.
(e) The Arborland Consumer Mall was owned by a joint venture consisting of the
Partnership and the seller of the property. In October 1997, the joint venture
sold the property in an all cash sale for $7,000,000. In connection with the
sale, the purchaser received a credit of $1,625,000 to remedy certain
environmental issues at the property. The General Partner believes that the
Partnership will have no further liability relating to the environmental issues
at the property. From the proceeds of the sale, the joint venture paid
$230,303 in selling costs. The basis of the property was $5,144,697 which
is net of accumulated depreciation of $10,632,690. For financial statement
purposes, the Partnership recognized a $1,650,516 provision for investment
property writedown during 1997 and recognized no gain or loss from the sale
of the property. The seller did not receive any sale proceeds and was not
allocated any gain or loss from the sale of the property for financial
statement purposes.
(f) In June 1996, the Partnership sold the Westlake Meadows Apartments in an
all cash sale for $10,800,000. From the proceeds of the sale, the Partnership
paid $344,963 in selling costs. The basis of the property was $5,607,034 which
is net of accumulated depreciation of $2,884,709. For financial statement
purposes, the Partnership recognized a gain of $4,848,003 from the sale of this
property.
<PAGE>
(g) In July 1996, the Partnership sold the Green Trails Apartments in an all
cash sale for $33,050,000. In addition, the buyer assumed a $415,682 liability
for accrued real estate taxes. From the proceeds of the sale, the Partnership
paid $857,567 in selling costs. The basis of the property was $22,847,278 which
is net of accumulated depreciation of $3,240,631. For financial statement
purposes, the Partnership recognized a gain of $9,760,837 from the sale of this
property.
12. Fair Value of Financial Investments:
The carrying amounts and fair values of the Partnership's financial instruments
at December 31, 1997 and 1996 are as follows:
The carrying value of cash and cash equivalents, accounts and accrued interest
receivable, and accounts payable approximates the fair value.
13. Contingency:
The Partnership is currently involved in a lawsuit whereby the Partnership, the
General Partner and certain third parties have been named as defendants seeking
damages relating to tender offers to purchase interests in the Partnership and
nine affiliated partnerships initiated by the third party defendants in 1996.
The defendants continue to vigorously contest this action. The action has been
dismissed with prejudice and plaintiffs have filed an appeal. It is not
determinable at this time whether or not an unfavorable decision in this action
would have a material adverse impact on the Partnership's financial position,
results of operations or liquidity. The Partnership believes it has meritorious
defenses to contest the claims.
14. Subsequent Event:
In January 1998, the Partnership made a distribution of $5,617,898 ($8.86 per
Tax-exempt Interest) to the holders of Tax-exempt Limited Partnership
Interests. This amount represents a distribution of Net Cash Proceeds ($8.49
per Tax-exempt Interest) from the 1997 sale of the Arborland Consumer Mall and
the release of an escrow from the sale of the Ammendale Technology Park - Phase
II office buildings and a distribution of remaining available Net Cash Receipts
reserves ($0.37 per Tax-exempt Interest).
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 8639
<SECURITIES> 0
<RECEIVABLES> 172
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 8946
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 8946
<CURRENT-LIABILITIES> 89
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 8857
<TOTAL-LIABILITY-AND-EQUITY> 8946
<SALES> 0
<TOTAL-REVENUES> 12676
<CGS> 0
<TOTAL-COSTS> 4066
<OTHER-EXPENSES> 2103
<LOSS-PROVISION> 2256
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4251
<INCOME-TAX> 0
<INCOME-CONTINUING> 4251
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4251
<EPS-PRIMARY> 5.32
<EPS-DILUTED> 5.32
</TABLE>
