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, 1999
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-15649
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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 Road
Bannockburn, IL 60015
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 267-1600
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Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
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(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
PART I
Item 1. Business
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Balcor Realty Investors 86-Series I A Real Estate Limited Partnership (the
"Registrant") is a limited partnership formed in 1984 under the laws of the
State of Illinois. The Registrant raised $59,791,000 from sales of Limited
Partnership Interests. The Registrant has retained cash reserves from the sale
of its real estate investments for contingencies which exist or may arise. The
Registrant's operations currently consist of interest income earned on
short-term investments and the payment of administrative expenses.
The Registrant utilized the net offering proceeds to acquire eight real
property investments and a minority joint venture interest in one additional
real property 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 its
interests in real estate. The Registrant sold its final real estate investment
in January 1997. The Registrant has retained a portion of the cash from the
property sales to satisfy obligations of the Registrant as well as to 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 Bruss and Masri lawsuits
discussed in "Item 3. Legal Proceedings". Due to this litigation, the
Registrant will not be dissolved and reserves will be held by the Registrant
until the conclusion of such contingencies. There can be no assurances as to
the time frame for the conclusion of all contingencies.
The Registrant no longer has an ownership interest in any real estate
investment. The General Partner is not aware of any material potential
liability relating to environmental issues or conditions affecting real estate
formerly owned by the Registrant.
The officers and employees of Balcor Partners-XIX, the General Partner of the
Registrant, and its affiliates perform services for the Registrant. The
Registrant currently has no employees engaged in its operations.
Item 2. Properties
- ------------------
As of December 31, 1999, the Registrant did not own any properties.
In the opinion of the General Partner, the Registrant has obtained adequate
insurance coverage for property liability and property damage matters.
See Notes to Financial Statements for other information regarding former real
estate property investments.
Item 3. Legal Proceedings
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Bruss et al. vs. Lehman Brothers, Inc., et al.
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On January 25, 1999, a proposed class action complaint was filed, Dorothy
Bruss, et al. vs. Lehman Brothers, Inc., et al. (Superior Court of New Jersey,
Law Division, Essex County, Docket No. L-000898-99). The Partnership, ten
additional limited partnerships which were sponsored by The Balcor Company
(together with the Partnership, the "Affiliated Partnerships"), The Balcor
Company, American Express Company, Lehman Brothers, Inc., Smith Barney, Inc.,
American Express Financial Corporation, and other affiliated entities and 9
individuals were named defendants in the action. Lead counsel representing the
plaintiffs in this case is the same counsel representing the plaintiffs in each
of the Lenore Klein case (now dismissed) and Raymond Masri case (see below).
The Bruss complaint raises largely the same issues as those raised in the
Lenore Klein and the Raymond Masri cases.
Upon the defendants' Motion to Dismiss, the Bruss complaint was dismissed
without prejudice on September 24, 1999. An amended complaint was filed on
November 30, 1999. The amended complaint differs from the original complaint in
that 8 of the 9 individual defendants and American Express Company were deleted
as defendants; the amended complaint also deletes 4 counts for breach of
fiduciary duty, breach of contract, conspiracy and violations of the New Jersey
RICO statute and similar statutes of other states. The amended complaint
alleges, common law fraud, equitable fraud, negligent misrepresentation and
violation of certain New Jersey and other similar state statutes relating to
the disclosure of information in the offering of limited partnership interests
in the Affiliated Partnerships, the marketing of interests in the Affiliated
Partnerships and the acquisition of real property for the Affiliated
Partnerships. The complaint seeks judgment for compensatory damages equal to
the amount invested in the Affiliated Partnerships by the proposed class plus
interest; general damages for injuries arising from the defendants' alleged
actions; equitable relief, including rescission on certain counts; punitive
damages; recovery from the Defendants of all profits received by them as a
result of their alleged actions relating to the Affiliated Partnerships; and
attorneys' fees and other costs.
The defendants filed a new Motion to Dismiss on January 31, 2000. The
defendants intend to vigorously contest this action. No class has been
certified as of this date. Management of each of the defendants believes that
it has meritorious defenses to contest the claims.
Raymond Masri vs. Lehman Brothers, Inc., et al.
- -----------------------------------------------
On February 29, 1996, a proposed class action complaint was filed, Raymond
Masri vs. Lehman Brothers, Inc., et al., Case No. 96/103727 (Supreme Court of
the State of New York, County of New York). The Partnership, twelve additional
limited partnerships which were sponsored by The Balcor Company, three limited
partnerships sponsored by the predecessor of Lehman Brothers, Inc., (together
with the Partnership, the "Defendant Partnerships"), Lehman Brothers, Inc. and
Smith Barney, Inc. are defendants. The complaint alleges, among other things,
common law fraud and deceit, negligent misrepresentation and breach of
fiduciary duty relating to the disclosure of information in the offering of
limited partnership interests in the Defendant Partnerships. The complaint
seeks judgment for compensatory damages equal to the amount invested in the
Defendant Partnerships by the proposed class plus interest accrued thereon;
general damages for injuries arising from the defendants' alleged actions;
recovery from the defendants of all profits received by them as a result of
their alleged actions relating to the Defendant Partnerships; exemplary
damages; attorneys' fees and other costs.
The defendants intend to vigorously contest this action. No class has been
certified as of this date. Management of each of the defendants believes they
have meritorious defenses to contest the claims.
No activity occurred on this matter during 1999. Plaintiffs' counsel also
represents the plaintiffs in the Dorothy Bruss matter, which is based on the
same set of facts. Raymond Masri is named as an additional plaintiff in the
Dorothy Bruss matter.
Madison Partnership Liquidity Investors XX, et al. vs. The Balcor Company, et
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al.
- ---
Sandra Dee vs. The Balcor Company, et al.
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On May 7, 1999, a proposed class action complaint was filed and on May 13, 1999
was served on the defendants, Madison Partnership Liquidity Investors XX, et
al. vs. The Balcor Company, et al. (Circuit Court, Chancery Division, Cook
County, Illinois, Docket No. 99CH 08972). The General Partner of the
Partnership, the general partners of twenty-one additional limited partnerships
which were sponsored by The Balcor Company, The Balcor Company and one
individual are named as defendants in this action. The Partnership and the
twenty-one additional limited partnerships are referred to herein as the
"Affiliated Partnerships". Plaintiffs are entities that initiated tender offers
to purchase units and, in fact, purchased units in eleven of the Affiliated
Partnerships.
On June 1, 1999, a proposed class action complaint was filed and on August 16,
1999 was served on the defendants, Sandra Dee vs. The Balcor Company, et al.
(Circuit Court, Chancery Division, Cook County, Illinois, Docket No. 99CH
08123). This complaint is identical in all material respects to the Madison
Partnership Liquidity Investors XX, et al. vs. The Balcor Company et al.
complaint filed in May 1999. The defendants filed on September 15, 1999 a
motion to consolidate the Dee case with the Madison Partnership case. On
September 20, 1999, the motion was granted and this case was consolidated with
the Madison Partnership case.
The complaints allege breach of fiduciary duties and breach of contract under
the partnership agreements for each of the Affiliated Partnerships. The
complaints seek the winding up of the affairs of the Affiliated Partnerships,
the establishment of a liquidating trust for each of the Affiliated
Partnerships until a resolution of all contingencies occurs, the appointment of
an independent trustee for each such liquidating trust and the distribution of
a portion of the cash reserves to limited partners. The complaints also seek
compensatory damages, punitive and exemplary damages, and costs and expenses in
pursuing the litigation.
The defendants filed motions to dismiss the complaints on July 14, 1999 and on
September 15, 1999. On January 19, 2000 a hearing on the motions was held and
the class allegations in the complaints were struck regarding the Partnership
and ten of the Affiliated Partnerships in which plaintiffs do not own
interests. In all other respects, the motions to dismiss were denied. While the
court directed the plaintiffs to file an amended complaint by February 18,
2000, as of this date they have yet to do so.
The defendants intend to vigorously contest this action. No class has been
certified as of this date.
Item 4. Submission of Matters to a Vote of Security Holders
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No matters were submitted to a vote of the Limited Partners of the Registrant
during 1999.
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
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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 distributions, see "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."
As of December 31, 1999, the number of record holders of Limited Partnership
Interests of the Registrant was 5,031.
Item 6. Selected Financial Data
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Year ended December 31,
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1999 1998 1997 1996 1995
----------- ----------- ---------- ----------- ------------
Total income $115,034 $87,854 $196,047 $9,793,385 $16,504,017
Loss before gain
on sales of
properties,
affiliates
participation in
joint ventures and
extraordinary
items (57,025) (118,276) (270,825) (2,556,051) (1,270,197)
Net (loss) income (57,025) (118,276) 396,165 29,092,474 (1,357,201)
Net (loss) income
per Limited
Partnership
Interest- Basic
and Diluted (0.95) (1.98) 6.47 481.70 (22.47)
Total assets 1,857,390 1,887,220 2,260,714 17,991,055 64,231,391
Mortgage notes
payable None None None 4,210,138 74,196,579
Distributions
per Limited
Partnership
Interest (A) None 4.24 177.50 119.00 2.50
(A) These amounts include distributions of Original Capital of $4.24, $172.50,
and $114.00 per Limited Partnership Interest during 1998, 1997 and 1996,
respectively.
Item 7. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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Operations
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Summary of Operations
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The operations of Balcor Realty Investors 86-Series I A Real Estate Limited
Partnership (the "Partnership") in 1999 and 1998 consisted primarily of
administrative expenses which were partially offset by interest income earned
on short-term investments. In addition, during 1999, the Partnership recognized
other income and expense in connection with the release of an escrow related to
the sale of the Pines of Cloverlane Apartments. Primarily as a result of lower
administrative expenses in 1999 and the income recognized in connection with
the release of the escrow, the Partnership's net loss decreased during 1999 as
compared to 1998. The Parnership sold its remaining property in 1997 and
recognized a gain in connection with the sale. As a result of the gain
recognized in connection with the 1997 property sale, the Partnership
recognized net income during 1997 as compared to a net loss during 1998.
Further discussion of the Partnership's operations is summarized below.
1999 Compared to 1998
- ---------------------
Primarily as a result of lower interest rates in 1999 and higher average cash
balances in 1998 prior to a distribution to Limited Partners in January 1998,
interest income on short-term investments decreased during 1999 as compared to
1998.
In connection with the sale of the Pines of Cloverlane Apartments in 1996, the
Partnership established an escrow account to provide for certain costs the
purchaser might incur at the property related to Pittsfield Township, Michigan
inspections and subsequent improvements at the property. During 1999, the
Partnership recognized other income of $33,106 and other expense of $19,800 in
connection with the release of amounts in the escrow account. See Liquidity and
Capital Resources for additional information.
During 1998, the Partnership paid additional property operating expenses
relating primarily to the Lakeside Apartments, which was sold in 1996.
Primarily due to a decrease in accounting and accrued legal fees,
administrative expenses decreased during 1999 as compared to 1998.
1998 Compared to 1997
- ---------------------
The Partnership sold the Lake Ridge Apartments during January 1997 and
recognized a gain of $828,751 in connection with the property sale. As a result
of this sale, rental and service income, interest expense on mortgage notes
payable, depreciation, amortization, real estate taxes and property management
fees ceased during 1997.
Higher average cash balances were available for investment in 1997 due to
proceeds received in connection with the sale of the Lake Ridge Apartments
prior to distribution to Limited Partners in April 1997. This resulted in a
decrease in interest income on short-term investments during 1998 as compared
to 1997.
The Partnership recognized other income during 1997 primarily in connection
with a partial refund of prior years' insurance premiums relating to the
Partnership's properties.
Property operating expense decreased in 1997 due to the sale of the
Partnership's remaining property. The Partnership paid additional expenditures
during 1997 relating to certain of the properties sold in prior years.
During 1997, the Partnership recognized other expense of $60,094 in connection
with amounts released to the purchaser from the escrow established in
connection with the sale of the Pines of Cloverlane Apartments.
In connection with the sale of Lake Ridge Apartments in January 1997, the
Partnership paid $126,222 in prepayment penalties and wrote-off the remaining
unamortized deferred financing fees of $35,539. These amounts were recognized
as debt extinguishment expense and classified as an extraordinary item for
financial statement purposes during 1997.
Liquidity and Capital Resources
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The cash position of the Partnership increased by approximately $243,000 as of
December 31, 1999 as compared to December 31, 1998. Operating activities used
cash of approximately $12,000 for the payment of administrative expenses, which
was partially offset by interest income earned on short-term investments and
other income. Cash received from investing activities consisted of the release
of an escrow of approximately $255,000 related to the sale of the Pines of
Cloverlane Apartments.
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all its
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 Bruss
and Masri lawsuits discussed in "Item 3. Legal Proceedings". Due to this
litigation, the Partnership will not be dissolved and reserves will be held by
the Partnership until the conclusion of such contingencies. There can be no
assurances as to the time frame for the conclusion of all contingencies.
The Partnership made distributions in 1998 and 1997 totaling $4.24 and $177.50
per Limited Partnership Interest, respectively. The Partnership made no
distributions in 1999. See Statement of Partners' Capital (Deficit) for
additional information. Distributions were comprised of $4.24 per Interest of
Net Cash Proceeds in 1998 and $5.00 per Interest of Net Cash Receipts and
$172.50 per Interest of Net Cash Proceeds in 1997.
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.
In 1996, the Partnership sold the Pines of Cloverlane Apartments. At closing,
$335,000 of the sale proceeds was placed in escrow to provide for certain costs
the purchaser might incur related to Pittsfield Township, Michigan inspections
and subsequent improvements at the property. During 1997, the purchaser
received $60,094 from the escrow. During 1999, the Partnership received
$255,106 from the escrow. The Partnership also received $33,106 of interest
income earned on the escrow amounts. The purchaser received the remaining
escrow amount of $19,800.
The Partnership believes that its key vendors were Year 2000 compliant with
respect to the Partnership's operations as of December 31, 1999 and that there
was no material effect on the business, financial position or results of
operations of the Partnership related to Year 2000 issues.
Certain statements in this report constitute "forward looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. These
statements may include statements regarding income or losses as well as
assumptions relating to the foregoing.
The forward-looking statements made by the Partnership are subject to known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Partnership to differ from any
future results, performance or achievements expressed or implied by the
forward-looking statements.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
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The supplemental financial information specified by Item 305 of Regulation S-K
is not applicable.
Item 8. Financial Statements and Supplementary Data
- ---------------------------------------------------
See Index to Financial Statements 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, 1999 December 31, 1998
--------------------- ---------------------
Financial Tax Financial Tax
Statements Returns Statements Returns
---------- --------- ---------- ---------
Total assets $1,857,390 $9,345,626 $1,887,220 $9,375,456
Partners' capital
(deficit) accounts:
General Partner (316,961) (314,401) (316,961) (314,401)
Limited Partners 2,068,388 9,554,071 2,125,413 9,612,436
Net (loss) income:
General Partner None None None 2,560
Limited Partners (57,025) (58,365) (118,276) (225,384)
Per Limited Part-
nership Interest (0.95)(A) (0.98) (1.98)(A) 3.77
(A) Amount represents basic and diluted net loss per Limited Partnership
Interest.
Item 9. Changes in and Disagreements with Accountants on Accounting and
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Financial Disclosure
- --------------------
There have been no changes in or disagreements with accountants on any matter
of accounting principles, practices or financial statement disclosure.
PART III
Item 10. Directors and Executive Officers of the Registrant
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(a) Neither the Registrant nor Balcor Partners-XIX, its General Partner, has a
Board of Directors.
(b, c & e) The names, ages and business experience 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 Managing Director, Chief Jayne A. Kosik
Financial Officer, Treasurer
and Assistant Secretary
Thomas E. Meador (age 52) joined Balcor in July 1979. He is Chairman, President
and Chief Executive Officer and has responsibility for all ongoing day-to-day
activities at Balcor. He is a member of the board of directors of The Balcor
Company. He is also Senior Vice President of American Express Company and is
responsible for its real estate operations worldwide. Prior to joining Balcor,
Mr. Meador was employed at the Harris Trust and Savings Bank in the commercial
real estate division where he was involved in various lending activities. Mr.
Meador received his M.B.A. degree from the Indiana University Graduate School
of Business.
Mr. Meador is on the Board of Directors of AMLI Commercial Properties Trust, a
private real estate investment trust that owns office and industrial buildings
in the Chicago, Illinois area. Mr. Meador was elected to the Board of AMLI
Commercial Properties Trust in August 1998.
Jayne A. Kosik (age 42) joined Balcor in August 1982 and, as Chief Financial
Officer, is responsible for Balcor's financial, human resources and treasury
functions. Ms. Kosik is also a member of the board of directors of The Balcor
Company. From June 1989 until October 1996, Ms. Kosik had supervisory
responsibility for accounting functions relating to Balcor's public and private
partnerships. She is also Treasurer and a Senior Managing Director of The
Balcor Company. Ms. Kosik is a Certified Public Accountant.
(d) There is no family relationship between any of the foregoing officers.
(e) None of the foregoing officers or employees are currently involved in any
material legal proceedings nor were any such proceedings terminated during the
fourth quarter of 1999 except that Mr. Meador is named, in his capacity as an
officer of Balcor, as a defendant in the Madison/Dee lawsuit described in "Item
3. Legal Proceedings".
Item 11. Executive Compensation
- -------------------------------
The Registrant has not paid and does not propose to pay any remuneration to the
executive officers and directors of the General Partner. The executive officers
receive compensation from The Balcor Company (but not from the Registrant) for
services performed for various affiliated entities, which may include services
performed for the Registrant. However, the General Partner believes that any
such compensation attributable to services performed for the Registrant is
immaterial to the Registrant. See Note 9 of Notes to Financial Statements for
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
Beneficial Beneficial Percent
Title of Class Owner Ownership of Class
- -------------- ---------------- ---------------- ----------------
Limited WIG 86-I 1,996 3.34%
Partnership Partners Limited
Interests Chicago, Partnership
Illinois Interests
Limited Metropolitan 1,526 2.55%
Partnership Acquisition VII, L.L.C. Limited
Interests Greenville, Partnership
South Carolina Interests
While WIG 86-I Partners and Metropolitan Acquisition VII, L.L.C. individually
own less than 5% of the Interests, for purposes of this Item 12, WIG 86-I
Partners is an affiliate of Metropolitan Acquisition VII, L.L.C. and,
collectively, they own 5.89% of the Interests.
(b) Balcor Partners-XIX and its officers and partners own as a group the
following Limited Partnership Interests of the Registrant:
Amount
Beneficially
Title of Class Owned Percent of Class
- -------------- ------------- ----------------
Limited Partnership
Interests 209 Interests Less than 1%
Relatives of the officers and affiliates of the General Partner do not own any
Limited Partnership Interests.
In addition, Balcor LP Corp., an affiliate of the General Partner, holds title
to 96 Limited Partnership Interests in the Partnership due exclusively to
instances in which Limited Partners abandoned title to their Limited
Partnership Interests. Balcor LP Corp. is a nominee holder only of such
Interests and has disclaimed any economic or beneficial ownership in said
Interests. All distributions of cash payable with respect to such Interests
held by Balcor LP Corp. are returned to the Partnership for distribution to
other Limited Partners in accordance with the Partnership Agreement.
(c) The Registrant is not aware of any arrangements, the operation of which may
result in a change of control of the Registrant.
Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------
(a & b) See Note 4 of Notes to Financial Statements for information relating to
the Partnership Agreement and the allocation of distributions and profits and
losses.
See Note 9 of Notes to Financial Statements for additional information relating
to transactions with affiliates.
(c) No management person is indebted to the Registrant.
(d) The Registrant has no outstanding agreements with any promoters.
PART IV
Item 14. Exhibits and Reports on Form 8-K
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(a)
(1 & 2) See Index to Financial Statements in this Form 10-K.
(3) Exhibits:
(3) The Amended and Restated Agreement and Certificate of Limited Partnership
is set forth as Exhibit 3 to Amendment No. 1 to Registrant's Registration
Statement on Form S-11 dated December 16, 1985 (Registration No. 33-361), and
said Agreement and Certificate is incorporated herein by reference.
(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 Quarterly Report on
Form 10-Q for the quarter ended June 30, 1992 are incorporated herein by
reference.
(27) Financial Data Schedule of the Registrant for 1999 is attached hereto.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter
ended December 31, 1999.
(c) Exhibits: See Item 14(a)(3) above.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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/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: March 28, 2000
---------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- ------------------- ------------------------ --------------
President and Chief Executive
Officer (Principal Executive
Officer) of Balcor Partners-XIX,
the General Partner
/s/Thomas E. Meador March 28, 2000
- ------------------- --------------
Thomas E. Meador
Senior Managing Director and Chief
Financial Officer (Principal
Accounting and Financial Officer) of
Balcor Partners-XIX,
the General Partner
/s/Jayne A. Kosik March 28, 2000
- ----------------- ---------------
Jayne A. Kosik
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants
Financial Statements:
Balance Sheets, December 31, 1999 and 1998
Statements of Partners' Capital (Deficit), for the years ended December 31,
1999, 1998 and 1997
Statements of Income and Expenses, for the years ended December 31, 1999, 1998
and 1997
Statements of Cash Flows, for the years ended December 31, 1999, 1998 and 1997
Notes to Financial Statements
Financial Statement Schedules are omitted for the reason that they are
inapplicable or equivalent information has been included elsewhere herein.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Balcor Realty Investors 86-Series I
A Real Estate Limited Partnership:
In our opinion, the accompanying balance sheets and the related statements of
partners' capital (deficit), of income and expenses and of cash flows present
fairly, in all material respects, the financial position of Balcor Realty
Investors 86 - Series I A Real Estate Limited Partnership (An Illinois Limited
Partnership, the "Partnership") at December 31, 1999 and 1998, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States. These financial statements are the
responsibility of the Partnership's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
As described in Note 2 to the financial statements, the partnership agreement
provides for the dissolution of the Partnership upon the occurrence of certain
events, including the disposition of all its interests in real estate. The
Partnership no longer has an ownership interest in any real estate investment.
As described in Note 14, the Partnership has contingencies related to
litigation. Upon resolution of the litigation contingency matters, the
Partnership intends to cease operations and dissolve.
PricewaterhouseCoopers LLP
Chicago, Illinois
March 28, 2000
BALCOR REALTY INVESTORS 86 - SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
December 31, 1999 and 1998
ASSETS
1999 1998
------------ ------------
Cash and cash equivalents $ 1,848,420 $ 1,605,485
Escrow deposits 274,906
Accounts and accrued interest
receivable 8,970 6,829
------------ ------------
$ 1,857,390 $ 1,887,220
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 75,196 $ 58,395
Due to affiliates 30,767 20,373
------------ ------------
Total liabilities 105,963 78,768
------------ ------------
Commitments and contingencies
Limited Partners' capital (59,791
Interests issued and outstanding) 2,068,388 2,125,413
General Partner's deficit (316,961) (316,961)
------------ ------------
Total partners' capital 1,751,427 1,808,452
------------ ------------
$ 1,857,390 $ 1,887,220
============ ============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 86 - SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
for the years ended December 31, 1999, 1998 and 1997
Partners' Capital (Deficit) Accounts
------------- ------------ -------------
General Limited
Total Partner Partners
------------- ------------ -------------
Balance at December 31, 1996 $ 12,397,181 $ (326,247) $ 12,723,428
Cash distributions to Limited
Partners (A) (10,612,903) (10,612,903)
Net income for the year
ended December 31, 1997 396,165 9,286 386,879
------------- ------------ -------------
Balance at December 31, 1997 2,180,443 (316,961) 2,497,404
Cash distribution to Limited
Partners (A) (253,715) (253,715)
Net loss for the year
ended December 31, 1998 (118,276) (118,276)
------------- ------------ -------------
Balance at December 31, 1998 1,808,452 (316,961) 2,125,413
Net loss for the year
ended December 31, 1999 (57,025) (57,025)
------------- ------------ -------------
Balance at December 31, 1999 $ 1,751,427 $ (316,961) $ 2,068,388
============= ============ =============
(A) Summary of distributions per Limited Partnership Interest:
1999 1998 1997
------------- ------------ -------------
First Quarter None $ 4.24 $ 165.00
Second Quarter None None 12.50
Third Quarter None None None
Fourth Quarter None None None
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 86 - SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the years ended December 31, 1999, 1998 and 1997
1999 1998 1997
------------- ------------ -------------
Income:
Rental and service $ 2,484
Interest on short-term
investments $ 81,928 $ 87,854 159,550
Other 33,106 34,013
------------- ----------- -------------
Total income 115,034 87,854 196,047
------------- ----------- -------------
Expenses:
Interest on mortgage
note payable 37,810
Depreciation 4,393
Amortization of deferred
expenses 260
Property operating 8,146 151,488
Real estate taxes 1,870
Property management fees 1,113
Administrative 152,259 197,984 209,844
Other 19,800 60,094
------------- ------------ -------------
Total expenses 172,059 206,130 466,872
------------- ------------ -------------
Loss before gain on sale of
property and extraordinary
item (57,025) (118,276) (270,825)
Gain on sale of property 828,751
------------- ------------ -------------
(Loss) income before
extraordinary item (57,025) (118,276) 557,926
------------- ------------ -------------
Extraordinary item:
Debt extinguishment expense (161,761)
------------- ------------ -------------
Net (loss) income $ (57,025) $ (118,276) $ 396,165
============= ============ =============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 86 - SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the years ended December 31, 1999, 1998 and 1997
(Continued)
1999 1998 1997
------------- ------------ -------------
Income before
extraordinary item
allocated to General Partner None None $ 12,578
============= ============ =============
(Loss) income before
extraordinary item
allocated to Limited Partners $ (57,025) $ (118,276) $ 545,348
============= ============ =============
(Loss) income before
extraordinary item per
Limited Partnership
Interest (59,791 issued
and outstanding) - Basic and
Diluted $ (0.95) $ (1.98) $ 9.12
============= ============ =============
Extraordinary item allocated
to General Partner None None $ (3,292)
============= ============ =============
Extraordinary item allocated
to Limited Partners None None $ (158,469)
============= ============ =============
Extraordinary item per Limited
Partnership Interest (59,791
issued and outstanding) -
Basic and Diluted None None $ (2.65)
============= ============ =============
Net income allocated to
General Partner None None $ 9,286
============= ============ =============
Net (loss) income allocated to
Limited Partners $ (57,025) $ (118,276) $ 386,879
============= ============ =============
Net (loss) income per Limited
Partnership Interest (59,791
issued and outstanding) -
Basic and Diluted $ (0.95) $ (1.98) $ 6.47
============= ============ =============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 86 - SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1999, 1998 and 1997
1999 1998 1997
------------- ------------ -------------
Operating activities:
Net (loss) income $ (57,025) $ (118,276) $ 396,165
Adjustments to reconcile net
(loss) income to net cash
used in operating activities:
Gain on sale of property (828,751)
Debt extinguishment expense 35,539
Depreciation of property 4,393
Amortization of deferred
expenses 260
Net change in:
Escrow deposits 19,800 258,377
Accounts and accrued
interest receivable (2,141) 6,133 158,116
Prepaid expenses 14,178
Accounts payable 16,801 6,299 (81,276)
Due to affiliates 10,394 (7,802) (89,186)
Accrued liabilities (35,921)
Security deposits (32,222)
------------- ------------ -------------
Net cash used in operating
activities (12,171) (113,646) (200,328)
------------- ------------ -------------
Investing activities:
Proceeds from sale of
property 5,400,000
Payment of selling costs (196,656)
Release of escrow deposit 255,106
------------- -------------
Net cash provided by investing
activities 255,106 5,203,344
------------- -------------
Financing activities:
Distributions to Limited
Partners (253,715) (10,612,903)
Distributions to joint venture
partner - affiliate (1,064,860)
Repayment of mortgage note
payable (4,210,138)
------------ -------------
Cash used in financing
activities (253,715) (15,887,901)
------------ -------------
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 86 - SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1999, 1998 and 1997
(Continued)
1999 1998 1997
------------- ------------ -------------
Net change in cash and cash
equivalents 242,935 (367,361) (10,884,885)
Cash and cash equivalents at
beginning of year 1,605,485 1,972,846 12,857,731
------------- ------------ -------------
Cash and cash equivalents at
end of year $ 1,848,420 $ 1,605,485 $ 1,972,846
============= ============ =============
The accompanying notes are an integral part of the financial statements.
BALCOR REALTY INVESTORS 86-SERIES I
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Nature of the Partnership's Business:
Balcor Realty Investors 86-Series I A Real Estate Limited Partnership (the
"Partnership") has retained cash reserves from the sale of its real estate
investments for contingencies which exist or may arise. The Partnership's
operations currently consist of interest income earned on short-term
investments and the payment of administrative expenses.
2. Partnership Termination:
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all its
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 Bruss
and Masri lawsuits discussed in Note 14 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 such contingencies. There can
be no assurances as to the time frame for the conclusion of all contingencies.
3. Accounting Policies:
(a) The preparation of the financial statements in conformity with generally
accepted accounting principles requires the General Partner to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could vary from those estimates.
(b) Depreciation expense was computed using the straight-line and accelerated
methods. Rates used in the determination of depreciation were based upon the
following estimated useful lives:
Years
-----
Buildings and improvements 20 to 30
Furniture and fixtures 5
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) 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 sale price less
estimated closing costs. The General Partner determined that no impairment in
value had occurred prior to the sales of the properties. The General Partner
considered the method referred to above to result in a reasonable measurement
of a property's fair value, unless other factors affecting the property's value
indicated otherwise.
(d) Deferred expenses consisted of financing fees which were amortized over the
terms of the respective loan agreements. Upon sale, any remaining balance was
recognized as debt extinguishment expense and classified as an extraordinary
item.
(e) The Partnership calculates the fair value of its financial instruments
based on estimates using present value techniques. The Partnership includes
this additional information in the notes to the financial statements when the
fair value is different than the carrying value of those financial instruments.
When the fair value reasonably approximates the carrying value, no additional
disclosure is made.
(f) In order for the capital account balances to more accurately reflect the
partners' remaining economic interests in the Partnership, the income (loss)
allocations have been adjusted.
(g) Cash and cash equivalents include all unrestricted, highly liquid
investments with an original maturity of three months or less. Cash is invested
or held primarily in one financial institution.
(h) The Partnership is not liable for Federal income taxes and each partner
recognizes his proportionate share of the Partnership income or loss in his tax
return; therefore, no provision for income taxes is made in the financial
statements of the Partnership.
(i) Revenue is recognized on an accrual basis in accordance with generally
accepted accounting principles.
(j) Statement of Financial Accounting Standards, No. 128, "Earnings per Share"
was adopted by the Partnership effective for the year-ended December 31, 1997.
Since the Partnership has no dilutive securities, there is no difference
between basic and diluted net income (loss) per Limited Partnership Interest.
4. Partnership Agreement:
The Partnership was organized on October 1, 1984. The Partnership Agreement
provides for Balcor Partners-XIX to be the General Partner and for the
admission of Limited Partners through the sale of up to 250,000 Limited
Partnership Interests at $1,000 per Interest, 59,791 of which were sold on or
prior to July 31, 1986, the termination date of the offering.
The Partnership Agreement provides that the General Partner will be allocated
1% of the profits and losses and the Limited Partners will be allocated 99% of
the profits and losses. In order for the capital account balances to more
accurately reflect the partners' remaining economic interests in the
Partnership, the income (loss) allocations have been adjusted.
One hundred percent of Net Cash Receipts available for distribution have been
distributed to the holders of Interests in proportion to their Participating
Percentages as of the record date for such distributions. Under certain
circumstances, the General Partner would have participated in the Net Cash
Proceeds of the sale or refinancing of Partnership properties. Since the
required subordination levels were not met, the General Partner has not
received any distributions of Net Cash Receipts or Net Cash Proceeds during the
lifetime of the Partnership.
5. Mortgage Note Payable:
During 1997, the Partnership incurred and paid interest expense on the mortgage
note payable of $37,810.
6. Management Agreements:
The Partnership's properties were managed by a third-party management company
prior to the sale of the properties. These management agreements provided for
annual fees of 5% of gross operating receipts.
7. Affiliates' Participation in Joint Venture:
The Cedar Crest and Lakeville Resort apartment complexes were each owned by the
Partnership and an affiliate. Both properties were sold in 1996. Profits and
losses were allocated 96.36% to the Partnership and 3.64% to the affiliate for
Cedar Crest Apartments, and 59.75% to the Partnership and 40.25% to the
affiliate for Lakeville Resort Apartments.
Pursuant to the terms of the sale for Lakeville Resort Apartments, the joint
venture was required to retain $500,000 of the sale proceeds until February
1997, at which time the funds were released in full. The affiliate's share of
the proceeds was $201,250. The affiliate also received a distribution of
$845,410, principally consisting of its share of repair escrows released during
1997. Pursuant to the terms of the sale for Cedar Crest Apartments, the joint
venture was required to retain $500,000 of the sale proceeds until March 1997,
at which time the funds were released in full. The affiliate's share of the
proceeds was $18,200. The total of the distributions made to the joint venture
partners during 1997 was $1,064,860.
8. Tax Accounting:
The Partnership keeps its books in accordance with the Internal Revenue Code,
rules and regulations promulgated thereunder, and existing interpretations
thereof. The accompanying financial statements, which are prepared in
accordance with generally accepted accounting principles, will differ from the
tax 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 loss for 1999 in the financial statements is $1,340 less than the tax
loss of the Partnership for the same period.
9. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates are:
Year Ended Year Ended Year Ended
12/31/99 12/31/98 12/31/97
-------------- -------------- --------------
Paid Payable Paid Payable Paid Payable
----- -------- ----- -------- ----- --------
Reimbursement of expenses
to General Partner,
at cost:
Accounting $7,726 $6,880 $6,323 $3,898 $31,273 $6,185
Data processing 4,798 7,528 2,120 872 1,910 1,399
Legal 3,083 4,293 4,878 3,016 27,041 5,435
Portfolio management 11,690 12,066 20,258 12,587 64,110 15,156
Property sales admin-
istration None None None None 8,543 None
Subject to the provisions of the partnership agreement, the Partnership has
agreed to advance the legal fees incurred by the General Partner in defending
the Madison Partnership lawsuit discussed in Note 14 of Notes to Financial
Statements.
10. Release of Escrow:
In 1996, the Partnership sold the Pines of Cloverlane Apartments. At closing,
$335,000 of the sale proceeds was placed in escrow to provide for certain costs
the purchaser might incur related to Pittsfield Township, Michigan inspections
and subsequent improvements at the property. During 1997, the purchaser
received $60,094 from the escrow, which was recorded as other expense for
financial statement purposes. During 1999, the Partnership received $255,106
from the escrow. The Partnership also received $33,106 of interest income
earned on the escrow amounts, which was recorded as other income for financial
statement purposes. The purchaser received the remaining escrow amount of
$19,800, which was recognized as other expense for financial statement
purposes.
11. Property Sale:
In January 1997, the Partnership sold the Lake Ridge Apartments in an all cash
sale for $5,400,000. From the proceeds of the sale, the Partnership paid
$4,123,938 and $86,200 to the third party mortgage holder in full satisfaction
of the first and second mortgage loans, and paid $196,656 in selling costs and
$126,222 in prepayment penalties. The basis of the property was $4,374,593,
which is net of accumulated depreciation of $2,460,549. For financial statement
purposes, the Partnership recognized a gain of $828,751 from the sale of this
property.
12. Extraordinary Item:
In connection with the sale of Lake Ridge Apartments in January 1997, the
Partnership paid $126,222 in prepayment penalties and wrote-off the remaining
unamortized deferred financing fees of $35,539. These amounts were recognized
as debt extinguishment expense and classified as an extraordinary item.
13. Other Income:
The Partnership recognized other income of $34,013 during 1997 primarily in
connection with partial refunds of prior years' insurance premiums relating to
the Partnership's properties.
14. Contingencies:
(a) 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. On September 24, 1999, the court granted the defendants'
motion to dismiss the complaint for failure to state a cause of action. The
plaintiffs filed an amended complaint on November 30, 1999. The defendants have
filed a motion to dismiss the complaint for failure to state a cause of action.
The defendants continue to vigorously contest these actions. The Partnership
believes it has meritorious defenses to contest the claims. It is not
determinable at this time how the outcome of either action will impact the
remaining cash reserves of the Partnership.
(b) In May 1999, a lawsuit was filed, Madison Partnership Liquidity Investors
XX, et al. vs. The Balcor Company, et al. whereby the General Partner and
certain affiliates have been named as defendants. The plaintiffs are entities
that initiated tender offers to purchase and, in fact, purchased units in
eleven affiliated partnerships. The complaint alleges breach of fiduciary
duties and breach of contract under the partnership agreement and seeks the
winding up of the affairs of the Partnership, the establishment of a
liquidating trust, the appointment of an independent trustee for the trust and
the distribution of a portion of the cash reserves to limited partners. On June
1, 1999, a second lawsuit was filed and was served on August 16, 1999, Sandra
Dee vs. The Balcor Company, et al. The Dee complaint is virtually identical to
the Madison Partnership complaint and on September 20, 1999 was consolidated
into the Madison Partnership case. On January 19, 2000, a hearing was held on
the defendants' motion to dismiss the complaint; at the hearing the class
allegations were struck regarding eleven of the partnerships, including the
Partnership. The defendants intend to vigorously contest these actions. It is
not determinable at this time how the outcome of these actions will impact the
remaining cash reserves of the Partnership.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 1848
<SECURITIES> 0
<RECEIVABLES> 9
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1857
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1857
<CURRENT-LIABILITIES> 106
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1751
<TOTAL-LIABILITY-AND-EQUITY> 1857
<SALES> 0
<TOTAL-REVENUES> 115
<CGS> 0
<TOTAL-COSTS> 20
<OTHER-EXPENSES> 152
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (57)
<INCOME-TAX> 0
<INCOME-CONTINUING> (57)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (57)
<EPS-BASIC> (0.95)
<EPS-DILUTED> (0.95)
</TABLE>
