SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1999
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
For the transition period from to
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Commission file number 0-15649
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BALCOR REALTY INVESTORS 86-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
Illinois 36-3327914
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Waukegan Rd.
Bannockburn, Illinois 60015
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 267-1600
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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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BALCOR REALTY INVESTORS 86 - SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
March 31, 1999 and December 31, 1998
(Unaudited)
ASSETS
1999 1998
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Cash and cash equivalents $ 1,584,143 $ 1,605,485
Escrow deposits 274,906 274,906
Accounts and accrued interest receivable 6,366 6,829
Prepaid expenses 1,896
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$ 1,867,311 $ 1,887,220
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LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 55,110 $ 58,395
Due to affiliates 23,054 20,373
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Total liabilities 78,164 78,768
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Commitments and contingencies
Limited Partners' capital
(59,791 Interests issued and
outstanding) 2,106,108 2,125,413
General Partner's deficit (316,961) (316,961)
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Total partners' capital 1,789,147 1,808,452
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$ 1,867,311 $ 1,887,220
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The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS 86 - SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the quarters ended March 31, 1999 and 1998
(Unaudited)
1999 1998
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Income:
Interest on short-term
investments $ 19,333 $ 23,513
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Total income 19,333 23,513
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Expenses:
Administrative 38,638 68,686
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Total expenses 38,638 68,686
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Net loss $ (19,305) $ (45,173)
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Net loss allocated to
General Partner None None
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Net loss allocated to
Limited Partners $ (19,305) $ (45,173)
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Net loss per Limited
Partnership Interest (59,791
issued and outstanding) - Basic and
Diluted $ (0.32) $ (0.76)
============== ==============
Distribution to Limited Partners None $ 253,715
============== ==============
Distribution per Limited Partnership
Interest (59,791 issued and
outstanding) None $ 4.24
============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS 86 - SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the quarters ended March 31, 1999 and 1998
(Unaudited)
1999 1998
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Operating activities:
Net loss $ (19,305) $ (45,173)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Net change in:
Accounts and accrued interest
receivable 463 5,272
Prepaid expenses (1,896) (2,331)
Accounts payable (3,285) 12,946
Due to affiliates 2,681 2,018
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Net cash used in operating
activities (21,342) (27,268)
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Financing activity:
Distribution to Limited
Partners (253,715)
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Cash used in financing activity (253,715)
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Net change in cash and cash equivalents (21,342) (280,983)
Cash and cash equivalents at beginning
of period 1,605,485 1,972,846
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Cash and cash equivalents at end of
period $ 1,584,143 $ 1,691,863
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The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR REALTY INVESTORS 86-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policy:
In the opinion of management, all adjustments necessary for a fair presentation
have been made to the accompanying statements for the quarter ended March 31,
1999, and all such adjustments are of a normal and recurring nature.
2. Partnership Termination:
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. The Partnership sold its final real estate investment in January
1997. The Partnership has retained a portion of the cash from the property
sales to satisfy obligations of the Partnership as well as to establish a
reserve for contingencies. The timing of the termination of the Partnership and
final distribution of cash will depend upon the nature and extent of
liabilities and contingencies which exist or may arise. Such contingencies may
include legal and other fees and costs stemming from litigation involving the
Partnership including, but not limited to, the lawsuits discussed in Note 4 of
Notes to Financial Statements. Due to this litigation, the Partnership will not
be dissolved and reserves will be held by the Partnership until the conclusion
of all contingencies. There can be no assurances as to the time frame for the
conclusion of these contingencies.
3. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates during the
quarter ended March 31, 1999 are:
Paid Payable
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Reimbursement of expenses to
the General Partner, at cost $9,410 $23,054
4. Contingencies:
The Partnership is currently involved in two related lawsuits, Masri vs. Lehman
Brothers, Inc., et al. and Bruss, et al. vs. Lehman Brothers, Inc., et al.,
whereby the Partnership and certain affiliates have been named as defendants
alleging substantially similar claims involving certain state securities and
common law violations with regard to the property acquisition process of the
Partnership, and to the adequacy and accuracy of disclosures of information
concerning, as well as marketing efforts related to, the offering of the
Limited Partnership Interests of the Partnership. The defendants continue to
vigorously contest these actions. A plaintiff class has not been certified in
either action. With respect to the Masri case, no determinations upon any
significant issues have been made. The Bruss complaint was filed on January 25,
1999. It is not determinable at this time how the outcome of either action will
impact the remaining cash reserves of the Partnership. The Partnership believes
it has meritorious defenses to contest the claims.
<PAGE>
BALCOR REALTY INVESTORS 86-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Balcor Realty Investors 86-Series I A Real Estate Limited Partnership (the
"Partnership") is a limited partnership formed in 1984 to invest in and operate
income-producing real property. The Partnership raised $59,791,000 through the
sale of Limited Partnership Interests and utilized these proceeds to acquire
eight real property investments and a minority joint venture interest in one
additional real property. The Partnership has no properties remaining in its
portfolio at March 31, 1999.
Inasmuch as the management's discussion and analysis below relates primarily to
the time period since the end of the last fiscal year, investors are encouraged
to review the financial statements and the management's discussion and analysis
contained in the annual report for 1998 for a more complete understanding of
the Partnership's financial position.
Operations
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Summary of Operations
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The operations of the Partnership in 1999 and 1998 consisted of administrative
expenses which were partially offset by interest income earned on short-term
investments. Primarily as a result of lower administrative expenses in 1999,
the Partnership's net loss decreased during 1999 as compared to 1998. Further
discussion of the Partnership's operations is summarized below.
1999 Compared to 1998
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Discussions of fluctuations between 1999 and 1998 refer to the quarters ended
March 31, 1999 and 1998.
Primarily as a result of lower average cash balances due in part to a
distribution to Limited Partners in January 1998, interest income on short-term
investments decreased during 1999 when compared to 1998.
Primarily due to a decrease in accounting and legal fees, administrative
expenses decreased during 1999 as compared to 1998.
Liquidity and Capital Resources
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The cash position of the Partnership decreased by approximately $21,000 as of
March 31, 1999 as compared to December 31, 1998 primarily due to cash used in
operating activites for the payment of administrative expenses, which was
partially offset by interest income earned on short-term investments.
<PAGE>
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. The Partnership sold its final real estate investment in January
1997. 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 lawsuits discussed in Note 4 of Notes to
Financial Statements. Due to this litigation, the Partnership will not be
dissolved and reserves will be held by the Partnership until the conclusion of
all contingencies. There can be no assurances as to the time frame for the
conclusion of these contingencies.
In connection with the sale of the Pines of Cloverlane Apartments in 1996, the
Partnership established an escrow account of $335,000 to provide for certain
costs the purchaser might incur related to Pittsfield Township, Michigan
inspections and subsequent improvements at the property. The purchaser has been
reimbursed $60,094 to date out of the escrow funds to cover such costs. The
additional escrow funds are available to cover future inspections through March
2002. Any funds remaining in the escrow at that time will be released to the
Partnership.
Limited Partners have received distributions of Net Cash Receipts of $12.50 and
Net Cash Proceeds of $290.74, totaling $303.24 per $1,000 Interest, as well as
certain tax benefits. No additional distributions are anticipated to be made
prior to the termination of the Partnership. However, after paying final
partnership expenses, any remaining cash reserves will be distributed. Limited
Partners will not recover a substantial portion of their original investment.
The Partnership sold all of its remaining real property investments and
distributed a majority of the proceeds from these sales to Limited Partners in
1996 and 1997. Since the Partnership no longer has any operating assets, the
number of computer systems and programs necessary to operate the Partnership
has been significantly reduced. The Partnership relies on third party vendors
to perform most of its functions and has implemented a plan to determine the
Year 2000 compliance status of these key vendors. The Partnership is within its
timeline for having these plans completed prior to the year 2000.
The Partnership's plan to determine the Year 2000 compliance status of its key
vendors involves the solicitation of information from these vendors through the
use of surveys, follow-up discussions and review of data where needed. The
Partnership has sent out surveys to these vendors and received back a majority
of these surveys. While the Partnership cannot guarantee Year 2000 compliance
by its key vendors, and in many cases will be relying on statements from these
vendors without independent verification, preliminary surveys indicate that the
key vendors performing services for the Partnership are aware of the issues and
are working on a solution to achieve compliance before the year 2000. The
Partnership is in the process of developing a contingency plan in the event any
of its key vendors are not Year 2000 compliant prior to the year 2000. As part
of its contingency plan, the Partnership will identify replacement vendors in
<PAGE>
the event that current vendors are not substantially Year 2000 compliant by
June 30, 1999. The Partnership does not believe that failure by any of its key
vendors to be Year 2000 compliant by the year 2000 would have a material effect
on the business, financial position or results of operations of the
Partnership.
<PAGE>
BALCOR REALTY INVESTORS 86-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits:
(4) Form of Subscription Agreement set forth as Exhibit 4.1 to Amendment No. 1
of the Registrant's Registration Statement on Form S-11 dated December 16, 1985
(Registration No. 33-361), and Form of Confirmation regarding Interests in the
Partnership 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. 0-15649) are
incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for the quarter ending March 31,
1999 is attached hereto.
(b) Reports on Form 8-K: No reports were filed in Form 8-K during the quarter
ended March 31, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BALCOR REALTY INVESTORS 86-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
By: /s/Thomas E. Meador
--------------------------------
Thomas E. Meador
President and Chief Executive Officer
(Principal Executive Officer) of Balcor
Partners - XIX, the General Partner
By: /s/Jayne A. Kosik
---------------------------------
Jayne A. Kosik
Senior Managing Director and Chief Financial
Officer (Principal Accounting and Financial
Officer) of Balcor Partners - XIX, the General
Partner
Date: May 6, 1999
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<PAGE>
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