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, 1995
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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 0-15528
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BALCOR PENSION INVESTORS-VII
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(Exact name of registrant as specified in its charter)
Illinois 36-3390487
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Waukegan Road
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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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
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Balcor Pension Investors-VII (the "Registrant") is a limited partnership formed
in 1985 under the laws of the State of Illinois. The Registrant raised
$115,367,500 from sales of Limited Partnership Interests. The Registrant's
operations consist of investment in one first mortgage loan and the operation
of six properties, five of which were acquired through foreclosure. All
financial information included in this report relates to this industry segment.
The Registrant originally funded eight loans. As a result of the repayments and
foreclosures of seven loans, the Registrant has one loan in its portfolio as of
December 31, 1995; however, the Whispering Hills' loan is accounted for as real
estate held for sale. Five properties were acquired through foreclosure and one
property adjacent to a property acquired through foreclosure was purchased. As
of December 31, 1995, the Registrant has six properties in its portfolio. See
"Item 2. Properties" for additional information.
Operationally, existing apartment properties continued to register occupancy
percentages in the 90s, with average rents rising at an annual rate of between
3 and 4 percent. Apartments are still considered one of the top real estate
asset classes in terms of performance. However, some markets are experiencing
new construction of rental units which, if unrestrained, could impact the
performance of existing properties. Most of the new construction is aimed at
the two segments of the rental market which are growing the fastest: low-income
households and upper-income households who prefer to rent rather than own. Of
all the major asset classes, apartments typically display the least volatility
in terms of property values.
With virtually no new construction over the past few years, the national office
market has experienced consistently rising occupancy rates and, recently,
rising rental rates. Investor interest has also returned, typically preferring
suburban buildings over their downtown counterparts. Except for properties
built for a specific tenant, the economic feasibility of new construction in
most markets is still several years away. Build-to-suit construction for large
companies currently in leased space could restrict office appreciation rates
over the next few years. In addition, increased vacancies could result from
companies who restructure their workforce in order to reduce their occupancy
costs.
Shopping centers are the most troubled asset class in real estate currently.
Unlike other asset classes, construction of power shopping centers, those with
a preponderance of "big box" retailers, occurred at a brisk pace during the
early 1990s, and now a shake-out of retailers is taking place. Retailers posted
lackluster sales in 1995, particularly in the latter half of the year, and
similar results are expected for 1996. The slight rise in interest rates in
1995 also contributed to low sales growth in interest rate sensitive sectors
such as automobiles and home furnishings. Nevertheless, retail properties are
particularly unique, and those with strong tenant alignments should better
weather the current slowdown. In the long-term, however, retail real estate is
also vulnerable to technological changes (e.g. home shopping) which could
drastically alter the retail distribution system.
<PAGE>
The General Partner believes that the market for multifamily housing properties
has become increasingly favorable to sellers of these properties. As a result,
the General Partner is exploring an acceleration of its strategy to sell the
Registrant's residential properties. Additionally, the General Partner will
explore the sale of its commercial properties over the next year if market
conditions are favorable.
Activity for the purchase of limited partnership interests ("tender offers")
have increased in real estate limited partnerships generally. Many of these
tender offers have been made by investors seeking to make a profit from the
purchase of the interests. In the event a tender offer is made for interests in
the Registrant, the General Partner will issue a response to limited partners
expressing the General Partner's opinion regarding the offer. Certain
administrative costs will be incurred to respond to a tender offer. The General
Partner cannot predict with any certainty what impact a tender offer will have
on the operations or management of the Registrant.
During 1995, the Registrant foreclosed on the Jonathan's Landing Apartments
loan and the Butler Plaza Shopping Center loan. The Butler Plaza Shopping
Center was classified as real estate held for sale effective December 31, 1994.
See Item 7. Liquidity and Capital Resources for additional information.
The Registrant, by virtue of its ownership of real estate acquired through
foreclosure is subject to federal and state laws and regulations covering
various environmental issues. Management of the Registrant utilizes the
services of environmental consultants to assess a wide range of environmental
issues and to conduct tests for environmental contamination as appropriate.
The General Partner is not aware of any potential liability due to
environmental issues or conditions that would be material to the Registrant.
The officers and employees of Balcor Mortgage Advisors-VII, the General Partner
of the Registrant, and its affiliates perform services for the Registrant. The
Registrant currently has no employees engaged in its operations.
Item 2. Properties
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As of December 31, 1995, the Registrant owns the six properties described
below:
Location Description of Property
- -------- -----------------------
Murray, Utah U.S. West Direct Center: a six-story office
building containing approximately 134,000 square
feet.
Riverside, California * Sand Pebble Village Apartments: a 440 unit garden
apartment complex located on approximately 20
acres.
Riverside, California * Sand Pebble Village Apartments - Phase II: a 274
unit garden apartment complex located on
approximately 14 acres.
<PAGE>
Columbus, Ohio Hickory Creek Apartments - Phases I & II: a 372
unit garden apartment complex located on
approximately 21 acres.
Orlando, Florida Butler Plaza: a shopping center containing
222,903 square feet located on approximately 23
acres.
Kent, Washington * Jonathan's Landing Apartments: a 576 unit garden
apartment complex located on approximately 30
acres.
* Owned by the Registrant through a joint venture with an affiliate.
See Note 9 of Notes to Financial Statements for additional information.
The Whispering Hills Apartments loan is accounted for as real estate held for
sale; however, the Registrant presently does not hold title to this property.
The property is located in Overland Park, Kansas.
Sand Pebble Village Apartments - Phase II is held subject to mortgage
indebtedness.
In the opinion of the General Partner, the Registrant has provided for adequate
insurance coverage for its real estate held for sale.
See Notes to Financial Statements for other information regarding real property
investments.
Item 3. Legal Proceedings
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Williams class action
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In February 1990, a proposed class-action complaint was filed, Paul Williams
and Beverly Kennedy, et al. vs. Balcor Pension Investors, et al., Case No.:
90-C-0726 (U.S. District Court, Northern District of Illinois). The Registrant,
the General Partner, seven affiliated limited partnerships (together with the
Registrant, the "Related Partnerships) and other affiliates are the defendants.
The complaint alleges violations of Federal securities laws as to the adequacy
and accuracy of disclosure of information in the offering of limited
partnership interests in the Related Partnerships and alleges breach of
fiduciary duty, fraud, negligence and violations under the Racketeer Influenced
and Corrupt Organizations Act. The complaint seeks compensatory and punitive
damages. The defendants subsequently filed a counterclaim asserting claims of
fraud and breach of warranty against certain plaintiffs, as well as a request
for declaratory relief regarding the defendants' rights to be indemnified for
their expenses incurred in defending the litigation. The defendants seek to
recover for damage to their reputations and business as well as costs and
attorneys' fees in defending the claims.
<PAGE>
In May 1993, the Court issued an order denying the plaintiffs' motion for class
certification based principally on the inadequacy of the individual plaintiffs
representing the proposed class. However, the Court gave plaintiffs leave to
propose new individual class representatives. Upon the defendants' motion, the
Court ordered plaintiffs' counsel to pay $75,000 to the defendants and $25,000
to the Court for costs incurred with the class certification motion, which
amounts continue to be outstanding.
In July 1994, the Court granted plaintiffs' motion certifying a class relating
to the Federal securities fraud claims. The class certified by the Court
includes only the original investors in the Related Partnerships. The
defendants filed a motion for reconsideration in opposition to the class
certification, which was denied in December 1994. The Court approved the
Notice of Class Action in August 1995 which was sent to potential members of
the class in September 1995.
The defendants intend to continue vigorously contesting this action.
Management of each of the defendants believes they have 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.
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 1995.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
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Matters
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There has not been an established public market for Limited Partnership
Interests and it is not anticipated that one will develop. For information
regarding previous distributions, see Financial Statements, Statements of
Partners' Capital, and Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources, below.
As of December 31, 1995, the number of record holders of Limited Partnership
Interests of the Registrant was 16,075.
Item 6. Selected Financial Data
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Year ended December 31,
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1995 1994 1993 1992 1991
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Total income $7,382,764 $9,012,908 $7,000,942 $7,051,802 $5,803,010
Recovery of losses on
loans, real estate
and accrued interest
receivable 1,137,000
Provision for
potential losses on
loans, real estate
and accrued interest
receivable None 1,137,000 4,150,000 3,000,000 3,275,000
Net income 5,424,542 6,238,369 2,400,958 2,319,684 1,428,637
Net income per
Limited Partnership
Interest 10.58 12.17 4.68 4.52 2.79
Total assets 94,180,552 89,991,386 90,585,381 88,668,751 84,639,355
Mortgage note
payable 4,887,630 4,941,641 4,991,956 None None
Distributions per
Limited Partnership
Interest (A) 20.48 12.00 12.00 16.00 11.50
(A) These amounts include distributions of original capital of $11.48 and $4.00
per Limited Partnership Interest for the years 1995 and 1992, respectively.
<PAGE>
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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Balcor Pension Investors-VII (the "Partnership") recognized lower net income in
1995 as compared to 1994 due to a decrease in interest income on loans
receivable as a result of a loan prepayment and three foreclosures in 1995 and
1994. The additional income recognized from the operations of real estate held
for sale in 1995 partially offset the decrease in interest income on loans
receivable. In 1993, the Partnership recognized a provision for potential
losses on loans, real estate and accrued interest receivable due to a decline
in the fair value of a property in which the Partnership holds a majority joint
venture interest. As a result, the Partnership recognized significantly lower
net income in 1993 as compared to 1994. Further discussion of the Partnership's
operations is summarized below.
1995 Compared to 1994
- ---------------------
The prepayment of the Eastgate Village Mobile Home Park loan in July 1994 and
the foreclosures of the Hickory Creek Apartments' loan in March 1994, the
Butler Plaza Shopping Center loan in January 1995 and the Jonathan's Landing
Apartments' loan in July 1995 resulted in a decrease in interest income on
loans receivable during 1995 as compared to 1994.
Income from operations of real estate held for sale represents the net
operations of seven properties. Original funds advanced by the Partnership
total approximately $77,360,000 for these seven properties. The Partnership
acquired the Jonathan's Landing Apartments in July 1995 and the Butler Plaza
Shopping Center in January 1995, both of which generated income during 1995. In
addition, income from operations at Hickory Creek Apartments - Phases I and II
increased substantially in 1995 as a result of maintenance expenditures which
were deferred by the former owner of the property and then completed by the
Partnership in 1994 after the foreclosure. These were the primary reasons for
the increase in income from operations of real estate held for sale during 1995
as compared to 1994.
As a result of higher average cash balances in 1995 resulting from the
discounted prepayment of the Eastgate Village Mobile Home Park loan in 1994 and
higher interest rates in 1995, interest income on short-term investments
increased during 1995 when compared to 1994. The proceeds from the Eastgate
loan repayment were distributed in July 1995.
Provisions are charged to income when the General Partner believes an
impairment has occurred to the value of its properties or in a borrowers
ability to repay a loan or in the value of the collateral property.
Determinations of fair value are made periodically on the basis of performance
under the terms of the loan agreement and assessments of property operations.
<PAGE>
Determinations of fair value represent estimates based on many variables which
affect the value of real estate, including economic and demographic conditions.
The Partnership did not recognize any provisions during 1995. The Partnership
recognized a recovery of $1,137,000 in 1994 relating to its loans. In addition,
during 1994, the Partnership recognized a provision of $1,137,000 related to
the Sand Pebble Village Apartments - Phase I to provide for changes in the
estimate of the fair value of this property.
Legal fees were incurred in 1994 in connection with the Whispering Hills
Apartments' litigation and the foreclosures of the loans secured by the Butler
Plaza Shopping Center and the Hickory Creek Apartments - Phases I and II. This
was the primary reason for the decrease in administrative expenses during 1995
as compared to 1994.
The joint venture partner's share of income generated from the operations of
the Jonathan's Landing Apartments, which was acquired through foreclosure in
July 1995, and the recognition in 1994 of the joint venture partner's share of
a loss provision related to the change in the estimate of the fair value of the
Sand Pebble Village - Phase I Apartments, resulted in an increase in
affiliates' participation in income from joint ventures during 1995 as compared
to 1994.
1994 Compared to 1993
- ---------------------
The Partnership received approximately $861,000 representing cash flow
generated during the bankruptcy proceedings for the Hickory Creek Apartments -
Phases I and II loan during the second quarter of 1994 which resulted in an
increase in interest income on loans receivable during 1994 as compared to
1993. Decreased income resulting from the August 1993 prepayment of the ROC
Properties loan partially offset this increase. As of December 31, 1994, the
Jonathan's Landing Apartments loan was on non-accrual status. The funds
advanced by the Partnership for this non-accrual loan totaled approximately
$12,455,000. For non-accrual loans, income was recorded only as cash payments
were received from the borrowers. During 1994, the Partnership received cash
payments of interest income totaling approximately $1,001,000 on this loan,
which agreed to the payments required under the terms of the loan agreement.
Income from operations of real estate held for sale represents the net
operations of the five properties acquired by the Partnership. Original funds
advanced by the Partnership totaled approximately $51,905,000 for these five
properties. The Partnership purchased Sand Pebble Village Apartments - Phase II
through a joint venture consisting of the Partnership and an affiliate and
acquired the Hickory Creek Apartments - Phases I and II through foreclosure in
October 1993 and March 1994, respectively. Income generated from operations at
these apartment complexes was the primary reason for the increase in income
from operations of real estate held for sale during 1994 as compared to 1993.
The Partnership recognized a provision of $750,000 related to its loans in
1993. In addition, the Partnership recognized a provision of $3,400,000 in 1993
related to the Partnership's real estate held for sale to provide for a decline
in the fair value of Sand Pebble Village Apartments - Phase I.
As a result of higher average cash balances resulting from the discounted
prepayment of the Eastgate Village Mobile Home Park loan in July 1994 and due
to higher market interest rates, interest income on short-term investments
increased during 1994 as compared to 1993.
<PAGE>
The Partnership's loans generally bear interest at contractually fixed interest
rates. Some loans also provide for additional interest in the form of
participations, usually consisting of either a share in the capital
appreciation of the property collateralizing the Partnership's loan and/or a
share in the increase of the gross income of the property above a certain
level. Participation income was recognized during 1993 in connection with the
August 1993 ROC Properties loan prepayment.
An increase in legal fees paid in connection with the Whispering Hills
Apartments litigation and the Hickory Creek Apartments - Phases I and II and
Butler Plaza Shopping Center foreclosures, resulted in an increase in
administrative expenses during 1994 as compared to 1993.
During 1993, the joint venture partner recognized its share of a loss provision
related to a decline in the fair value of Sand Pebble Village Apartments -
Phase I. During 1994, the joint venture partner also recognized its share of an
additional loss provision related to this investment. The effect of these
provisions resulted in affiliates' participation in income for 1994 as compared
to affiliates' participation in loss for 1993.
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership decreased as of December 31, 1995 when
compared to December 31, 1994 primarily due to a special distribution made to
the Limited Partners in July 1995. The cash flow provided by the Partnership's
operating activities consisted of property operations and interest income
earned on the loan receivable and short-term investments. The payment of
administrative costs partially offset this cash flow. Investing activities
consisted of the payment of costs incurred in connection with the Butler Plaza
and Jonathan's Landing foreclosures. Financing activities consisted primarily
of distributions to Partners and affiliated joint venture partners.
The Partnership defines cash flow generated from its properties as an amount
equal to the property's revenue receipts less property related expenditures,
which include debt service payments. Sand Pebble Village Apartments - Phase II
is the only property that has underlying debt. All of the Partnership's
properties generated positive cash flow during 1995 and 1994.
As of December 31, 1995, the occupancy rates of the Partnership's residential
properties ranged from 92% to 97%, except for the Sand Pebble Village
Apartments - Phase II which had an occupancy rate of 88%. The occupancy rates
at the U.S. West Direct Center Office Building and the Butler Plaza Shopping
Center were 93% and 84%, respectively. Many rental markets continue to remain
extremely competitive; therefore, the General Partner's goals are to maintain
high occupancy levels while increasing rents where possible and to monitor and
control operating expenses and capital improvement requirements at the
properties.
The General Partner believes that the market for multifamily housing properties
has become increasingly favorable to sellers of these properties. As a result,
the General Partner is exploring an acceleration of its strategy to sell the
Partnership's residential properties. Additionally, the General Partner will
explore the sale of its commercial properties over the next year if market
conditions are favorable.
<PAGE>
The Partnership acquired the Butler Plaza Shopping Center and the Jonathan's
Landing Apartments through foreclosure in January and July 1995, respectively.
See Note 10 of Notes to Financial Statements for additional information.
The Partnership made four distributions in each of 1995, 1994 and 1993 totaling
$20.48, $12.00 and $12.00 per Interest, respectively. See Financial Statements,
Statements of Partners' Capital. Distributions per Interest were comprised of
$9.00 of Cash Flow and $11.48 of Mortgage Reductions for 1995 and $12.00 of
Cash Flow in each of 1994 and 1993. Distributions of Cash Flow decreased in
1995 due to the loan prepayment and foreclosures in 1995 and 1994.
Distributions of Mortgage Reductions in 1995 represented proceeds received from
the prepayment of the Eastgate Village Mobile Home Park loan in 1994. The
Partnership expects to continue making cash distributions to Limited Partners
from the Cash Flow generated by property operations less administrative
expenses. The General Partner believes the Partnership has retained an
appropriate amount of working capital to meet cash or liquidity requirements
which may occur.
In January 1996, the Partnership paid $1,384,410 ($3.00 per Interest) to the
holders of Limited Partnership Interests representing the regular quarterly
distribution of available Cash Flow for the fourth quarter of 1995. The
quarterly distribution level remained unchanged from the amount distributed for
the third quarter of 1995. In January 1996, the Partnership also paid $115,367
to the General Partner as its share of the Cash Flow distributed for the fourth
quarter of 1995 and $38,456 as its contribution to the Early Investment
Incentive Fund. Including the January 1996 distribution, Limited Partners have
received $105.56 of Cash Flow from operations and a return of Original Capital
of $36.33, totaling $141.89 per $250 Interest.
During 1995, the General Partner used amounts placed in the Early Investment
Incentive Fund to repurchase 1,657 Interests from Limited Partners at a cost of
$291,727.
In 1995, the Financial Accounting Standards Board issued Statement No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" which establishes accounting standards for impairment of
long-lived assets and long-lived assets to be disposed of. This statement has
been adopted by the Partnership as of January 1, 1995, and did not have a
material impact on the financial position or results of operations of the
Partnership.
Inflation has several types of potentially conflicting impacts on real estate
investments. Short-term inflation can increase real estate operating costs
which may or may not be recovered through increased rents and/or sales prices
depending on general or local economic conditions. In the long-term, inflation
will increase operating costs and replacement costs and may lead to increased
rental revenues and real estate values.
<PAGE>
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.
Item 9. Changes in and Disagreements with Accountants on Accounting and
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Financial Disclosure
- --------------------
On September 14, 1995 the Partnership approved the engagement of Coopers &
Lybrand L.L.P. as its independent auditors for the fiscal year ending December
31, 1995 to replace the firm of Ernst & Young LLP, who were dismissed as
auditors of the Partnership effective September 14, 1995. The General Partner
of the Partnership approved the change in auditors.
The reports of Ernst & Young LLP on the Partnership's financial statements for
the past two fiscal years did not contain an adverse opinion or a disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope, or
accounting principles.
In connection with the audits of the Partnership's financial statements for
each of the two fiscal years ended December 31, 1994, and in the subsequent
interim period, there were no disagreements with Ernst & Young LLP on any
matters of accounting principles or practices, financial statement disclosure,
or auditing scope and procedures which, if not resolved to the satisfaction of
Ernst & Young LLP would have caused Ernst & Young LLP to make reference to the
matter in their report.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
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(a) Neither the Registrant nor Balcor Mortgage Advisors-VII, 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 Vice President Alexander J. Darragh
Senior Vice President Josette V. Goldberg
Senior Vice President Alan G. Lieberman
Senior Vice President, Chief Brian D. Parker
Financial Officer, Treasurer
and Assistant Secretary
Senior Vice President John K. Powell, Jr.
Thomas E. Meador (July 1947) 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 Director 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 (February 1955) joined Balcor in September 1988 and is
responsible for due diligence analysis and real estate advisory services for
Balcor and American Express Company. He also has supervisory responsibility for
Balcor's environmental matters. Mr. Darragh received masters' degrees in Urban
Geography from Queen's University and in Urban Planning from Northwestern
University.
Josette V. Goldberg (April 1957) joined Balcor in January 1985 and has primary
responsibility for all human resources matters. In addition, she has
supervisory responsibility for Balcor's MIS functions. Ms. Goldberg has been
designated as a Senior Human Resources Professional (SHRP).
Alan G. Lieberman (June 1959) joined Balcor in May 1983 and is responsible for
Balcor's property sales and capital markets functions. Mr. Lieberman is a
Certified Public Accountant.
Brian D. Parker (June 1951) joined Balcor in March 1986 and, as Chief Financial
Officer and Chief Accounting Officer, is responsible for Balcor's financial,
legal and treasury functions. He is a Director of The Balcor Company. Mr.
Parker is a Certified Public Accountant and holds an M.S. degree in Accountancy
from DePaul University.
<PAGE>
John K. Powell Jr. (June 1950) 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 and investor services functions. 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.
(d) There is no family relationship between any of the foregoing officers.
(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 1995.
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. Certain of these
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 8 of Notes to Financial
Statements for the information relating to transactions with affiliates.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -----------------------------------------------------------------------
(a) No person owns of record or is known by the Registrant to own beneficially
more than 5% of the outstanding Limited Partnership Interests of the
Registrant.
(b) Balcor Mortgage Advisors-VII, principally through the Early Investment
Incentive Fund, 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 9,776 Interests Less than 3%
Interest
Relatives and affiliates of the officers and partners of the General Partner do
not own any additional Interests.
(c) The Registrant is not aware of any arrangements, the operation of which may
result in a change of control of the Registrant.
<PAGE>
Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------
(a & b) See Note 3 of Notes to Financial Statements for information relating to
the Partnership Agreement and the allocation of distributions and profits and
losses.
See Note 8 of Notes to Financial Statements for additional information relating
to transactions with affiliates.
(c) No management person is indebted to the Registrant.
(d) The Registrant has no outstanding agreements with any promoters.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules 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. 1 to the Registrant's
Registration Statement on Form S-11 dated March 6, 1986 (Registration No.
33-01630), is incorporated herein by reference.
(4) Form of Subscription Agreement previously filed as Exhibit 4.1 to Amendment
No. 1 to the Registrant's Registration Statement on Form S-11 dated March 6,
1986 (Registration No. 33-01630) 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. 0-15528) are
incorporated herein by reference.
(16) Letter from Ernst & Young LLP dated September 19, 1995 regarding the
change in the Registrant's certifying accountant previously filed as Exhibit 16
to the Registrant's Report on Form 8-K/A dated October 27, 1995 (Commission
File No. 0-15528), is hereby incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for 1995 is attached hereto.
(b) Reports on Form 8-K: A Current Report on Form 8-K/A dated October 27, 1995,
amending the Current Report on Form 8-K dated September 19, 1995 reporting a
change in the Registrant's certifying accountant, was filed (Commission File
No. 0-15528).
(c) Exhibits: See Item 14(a)(3) above.
(d) Financial Statement Schedules: None.
<PAGE>
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 PENSION INVESTORS-VII
By: /s/Brian D. Parker
--------------------------------
Brian D. Parker
Senior Vice President, and Chief
Financial Officer (Principal Accounting
and Financial Officer) of Balcor Mortgage
Advisors-VII, the General Partner
Date: March 29, 1996
--------------
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 Mortgage
/s/Thomas E. Meador Advisors-VII, the General Partner March 29, 1996
- -------------------- --------------
Thomas E. Meador
Senior Vice President, and Chief
Financial Officer (Principal
Accounting and Financial
Officer) of Balcor Mortgage
/s/Brian D. Parker Advisors-VII, the General Partner March 29, 1996
- -------------------- --------------
Brian D. Parker
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants
Report of Independent Auditors
Financial Statements:
Balance Sheets, December 31, 1995 and 1994
Statements of Partners' Capital, for the years ended December 31, 1995, 1994
and 1993
Statements of Income and Expenses, for the years ended December 31, 1995, 1994
and 1993
Statements of Cash Flows, for the years ended December 31, 1995, 1994 and 1993
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 Pension Investors-VII:
We have audited the accompanying balance sheet of Balcor Pension Investors-VII
(An Illinois Limited Partnership) as of December 31, 1995 and the related
statements of partners' capital, income and expenses, and cash flows for the
year then ended. 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 audit.
We conducted our audit 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 audit provides 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 Pension Investors-VII
(An Illinois Limited Partnership) at December 31, 1995 and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 27, 1996
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners of
Balcor Pension Investors-VII:
We have audited the accompanying balance sheet of Balcor Pension Investors-VII
(An Illinois Limited Partnership) as of December 31, 1994 and the related
statements of partners' capital, income and expenses and cash flows for each of
the two years in the period ended December 31, 1994. 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 Pension Investors-VII
at December 31, 1994 and the results of its operations and its cash flows for
each of the two years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
March 14, 1995
<PAGE>
BALCOR PENSION INVESTORS - VII
(AN ILLINOIS LIMITED PARTNERSHIP)
BALANCE SHEETS
December 31, 1995 and 1994
ASSETS
1995 1994
------------ ------------
Cash and cash equivalents $ 8,595,511 $ 13,194,808
Escrow deposits 80,519 82,831
Accounts and accrued interest receivable 188,638 288,392
Prepaid expenses 120,902
Deferred expenses, net of accumulated
amortization of $151,560 in 1995 and
$124,711 in 1994 95,696 53,883
------------ ------------
9,081,266 13,619,914
------------ ------------
Investment in loan receivable:
Loan receivable - first mortgage 10,865,000
Loan application and processing fees,
net of accumulated amortization of
$2,152,041 in 1994 156,676
Less:
Allowance for potential loan losses 1,166,260
------------
Net investment in loan receivable 9,855,416
Real estate held for sale (net of
allowance of $4,537,000 in 1995 and 1994) 85,099,286 66,516,056
------------ ------------
85,099,286 76,371,472
------------ ------------
$ 94,180,552 $ 89,991,386
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 249,632 $ 214,042
Due to affiliates 26,616 69,852
Accrued real estate taxes 281,776 259,772
Security deposits 410,618 374,695
Mortgage note payable 4,887,630 4,941,641
------------ ------------
Total liabilities 5,856,272 5,860,002
------------ ------------
Affiliates' participation in joint ventures 21,748,967 13,068,237
Limited Partners' capital (461,470
Interests issued and
outstanding) 68,469,893 73,038,711
General Partner's deficit (1,894,580) (1,975,564)
------------ ------------
Total partners' capital 66,575,313 71,063,147
------------ ------------
$ 94,180,552 $ 89,991,386
============ ============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS - VII
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
for the years ended December 31, 1995, 1994, and 1993
Partners' Capital (Deficit) Accounts
------------------------------------------
General Limited
Total Partner Partners
------------- ------------ -------------
Balance at December 31, 1992 $ 74,729,684 $ (1,608,913)$ 76,338,597
Cash distributions to:
Limited Partners (A) (5,537,640) (5,537,640)
General Partner (615,292) (615,292)
Net income for the year
ended December 31, 1993 2,400,958 240,096 2,160,862
------------- ------------ -------------
Balance at December 31, 1993 70,977,710 (1,984,109) 72,961,819
Cash distributions to:
Limited Partners (A) (5,537,640) (5,537,640)
General Partner (615,292) (615,292)
Net income for the year
ended December 31, 1994 6,238,369 623,837 5,614,532
------------- ------------ -------------
Balance at December 31, 1994 71,063,147 (1,975,564) 73,038,711
Cash distributions to:
Limited Partners (A) (9,450,906) (9,450,906)
General Partner (461,470) (461,470)
Net income for the year
ended December 31, 1995 5,424,542 542,454 4,882,088
------------- ------------ -------------
Balance at December 31, 1995 $ 66,575,313 $ (1,894,580)$ 68,469,893
============= ============ =============
(A) Summary of cash distributions paid per Limited Partnership Interest:
1995 1994 1993
------------- ---------------------------
First Quarter $5.15 $3.00 $3.00
Second Quarter 2.00 3.00 3.00
Third Quarter 10.33 3.00 3.00
Fourth Quarter 3.00 3.00 3.00
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS - VII
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF INCOME AND EXPENSES
for the years ended December 31, 1995, 1994, and 1993
1995 1994 1993
------------- ------------ -------------
Income:
Interest on loans
receivable, net of
amortization of loan
application and processing
fees of $156,676 in 1995,
$350,617 in 1994, and
$151,069 in 1993 $ 323,053 $ 2,890,249 $ 2,660,577
Income from operations of
real estate held for sale 6,431,686 4,608,100 3,758,483
Interest on short-term
investments 628,025 377,559 173,799
Participation income 408,083
Recovery of losses on loans,
real estate and accrued
interest receivable 1,137,000
------------- ------------ -------------
Total income 7,382,764 9,012,908 7,000,942
------------- ------------ -------------
Expenses:
Provision for potential
losses on loans, real
estate and accrued interest
receivable 1,137,000 4,150,000
Administrative 639,708 916,483 831,148
------------- ------------ -------------
Total expenses 639,708 2,053,483 4,981,148
------------- ------------ -------------
Income before affiliates'
participation in (income)
loss of joint ventures 6,743,056 6,959,425 2,019,794
Affiliates' participation in
(income) loss of joint
ventures (1,318,514) (721,056) 381,164
------------- ------------ -------------
Net income $ 5,424,542 $ 6,238,369 $ 2,400,958
============= ============ =============
Net income allocated to
General Partner $ 542,454 $ 623,837 $ 240,096
============= ============ =============
Net income allocated to
Limited Partners $ 4,882,088 $ 5,614,532 $ 2,160,862
============= ============ =============
Net income per Limited
Partnership Interest
(461,470 issued and
outstanding) $ 10.58 $ 12.17 $ 4.68
============= ============ =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS - VII
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1995, 1994, and 1993
1995 1994 1993
------------- ------------ -------------
Operating activities:
Net income $ 5,424,542 $ 6,238,369 $ 2,400,958
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Affiliates'
participation in
income (loss) of
joint ventures 1,318,514 721,056 (381,164)
Amortization of
deferred expenses 26,849 34,487 38,587
Amortization of loan
application and
processing fees 156,676 350,617 151,069
Recovery of losses on
loans, real estate and
accrued interest
receivable (1,137,000)
Provision for potential
losses on loans, real
estate and accrued
interest receivable 1,137,000 4,150,000
Payment of leasing
commissions (68,662) (27,410)
Net change in:
Escrow deposits 2,312 (22,241) (60,590)
Accounts and accrued
interest receivable 99,754 401,194 (183,687)
Prepaid expense (120,902)
Accounts payable 35,590 (98,993) 236,651
Due to affiliates (43,236) (4,217) 29,392
Accrued liabilities 22,004 174,510 (2,986)
Security deposits 35,923 164,066 50,338
------------- ------------ -------------
Net cash provided by
operating activities 6,889,364 7,958,848 6,401,158
------------- ------------ -------------
Investing activities:
Costs incurred in connection
with real estate acquired
through foreclosure (283,490)
Improvements to properties (114,721) (51,318)
Purchase of property (9,357,449)
Collection of principal
payments on loan
receivable 6,789,760 3,154,074
Proceeds from litigation
settlement 1,000,000 125,000
------------- ------------ -------------
Net cash (used in) or
provided by investing
activities (283,490) 7,675,039 (6,129,693)
------------- ------------ -------------
Financing activities:
Distributions to Limited
Partners (9,450,906) (5,537,640) (5,537,640)
Distributions to General
Partner (461,470) (615,292) (615,292)
Distributions to joint
venture partners -
affiliates (1,238,784) (1,479,385) (1,032,696)
Contributions from joint
venture partners -
affiliates 1,932,910
Proceeds from issuance of
mortgage note payable 5,000,000
Principal payments on
mortgage note payable (54,011) (50,315) (8,044)
------------- ------------ -------------
Net cash used in financing
activities (11,205,171) (7,682,632) (260,762)
------------- ------------ -------------
Net change in cash and cash
equivalents (4,599,297) 7,951,255 10,703
Cash and cash equivalents at
beginning of year 13,194,808 5,243,553 5,232,850
------------- ------------ -------------
Cash and cash equivalents at
end of year $ 8,595,511 $ 13,194,808 $ 5,243,553
============= ============ =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PENSION INVESTORS-VII
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Balcor Pension Investors-VII (the "Partnership") is engaged principally in
the operation of residential, commercial, and retail real estate located in
various markets within the United States.
2. 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) Income on loans was recorded as earned in accordance with the terms of the
related loan agreements. The accrual of interest was discontinued when a loan
became ninety days contractually delinquent or sooner when, in the opinion of
the General Partner, an impairment occurred in the value of the collateral
property securing the loan. Income on nonaccrual loans or loans which are
otherwise not performing in accordance with their terms was recorded on a cash
basis.
Various loan agreements provided for participation by the Partnership in
increases in value of the collateral property when the loan was to be repaid or
refinanced. In addition, certain loan agreements allowed the Partnership to
receive a percentage of rental income exceeding a base amount. Participation
income was reflected in the accompanying Statements of Income and Expenses when
received.
Income from operations of real estate held for sale is reflected in the
accompanying Statements of Income and Expenses net of related direct operating
expenses.
(c) Loan losses on mortgage notes receivable were charged to income and an
allowance account was established when the General Partner believed the loan
balance would not be recovered. The General Partner assessed the collectibility
of each loan on a periodic basis through a review of the collateral property
operations, the property value and the borrower's ability to repay the loan.
Upon foreclosure, the loan net of the allowance was transferred to real estate
held for sale after the fair value of the property, less costs of disposal was
assessed. Upon the transfer to real estate held for sale, a new basis in the
property was established.
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 General Partner periodically assesses, but not less than on an annual
basis, the fair value of its real estate properties held for sale. The General
Partner estimates the fair value of its properties by dividing the property's
expected net operating income by a risk adjusted rate of return or by applying
a discounted cash flow analysis both of which consider economic and demographic
conditions in the market. Changes in the property's fair value is recorded by
an adjustment to the property allowance account and is recognized in the income
<PAGE>
statement as an increase or decrease through recovery income or a provision for
loss in the period the change in fair value is determined. The General Partner
considers 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
indicate otherwise.
(d) Deferred expenses consisted of loan application and processing fees and
mortgage brokerage fees which were amortized over the terms of the respective
agreements, and leasing commissions which are amortized over the life of each
respective lease.
(e) Revenue is recognized on an accrual basis in accordance with generally
accepted accounting principles. Income from operating leases with significant
abatements and/or scheduled rent increases is recognized on a straight line
basis over the term of the respective lease. Service income includes
reimbursements for operating costs such as real estate taxes, maintenance and
insurance and is recognized as revenue in the period the applicable costs are
incurred.
(f) 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. Since quoted market prices are not available for the Partnership's
financial instruments, fair values have been based on estimates using present
value techniques. These techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, may not be realized in
immediate settlement of the instrument. 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.
(g) Cash and cash equivalents include all unrestricted, highly liquid
investments with an original maturity of three months or less. Cash and cash
equivalents are primarily held or invested with one issuer of commercial paper.
(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) Mortgage servicing fees have been reclassified and are included in
administrative expenses during 1995. Several other reclassifications have also
been made to the previously reported 1994 and 1993 financial statements to
conform with the classifications used in 1995. These reclassifications have not
changed the 1994 and 1993 results.
3. Partnership Agreement:
The Partnership was organized on October 25, 1985. The Partnership Agreement
provides for Balcor Mortgage Advisors-VII to be the General Partner and for the
admission of Limited Partners through the sale of up to 1,600,000 Limited
Partnership Interests at $250 per Interest, 461,470 of which were sold on or
prior to January 31, 1987, the termination date of the offering.
<PAGE>
For financial statement purposes, the Partnership's results of operations are
allocated 90% to Limited Partners and 10% to the General Partner, of which 2.5%
relates to the Early Investment Incentive Fund.
To the extent that Cash Flow is distributed, distributions are made as follows:
(i) 90% is distributed to the Limited Partners, (ii) 7.5% is distributed to the
General Partner, and (iii) an additional 2.5% is distributed to the General
Partner and constitutes the Early Investment Incentive Fund (the "Fund"). Upon
the liquidation of the Partnership, the General Partner will return to the
Partnership for distribution to Early Investors an amount not to exceed the
amount originally allocated to the Fund, if necessary, for Early Investors to
receive a return of their Original Capital plus a specified Cumulative Return
based on the date of investment.
Amounts placed in the Fund are available, at the sole discretion of the General
Partner and subject to certain limitations, to be used to repurchase Interests
from existing Limited Partners. During 1995, the Fund repurchased 1,657
Interests at a cost of $291,727. All repurchases of Interests have been 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 Cash Flow and Mortgage Reductions pertaining to such
repurchased Interests will be paid to the Fund and will be available to
repurchase additional Interests.
4. Investment in Loan Receivable:
The Partnership and an affiliate previously funded a $23,500,000 mortgage loan
on Jonathan's Landing Apartments. In July 1995, the participants made a
successful bid at a foreclosure sale and obtained title to the property. The
Partnership's share of the loan of $10,865,000 at December 31, 1994 was
classified as non-accrual as a result of noncompliance with the terms of the
loan agreement.
Under certain circumstances, the General Partner had entered into negotiations
with borrowers which resulted in a reduction of interest rates, periodic
payments or the modification of other loan terms. There were no loans at
December 31, 1994 whose monetary terms had been restructured. Non-accrual loans
and loans which have been restructured or placed in default are hereinafter
referred to as impaired loans.
Interest income relating to impaired loans would have been approximately
$480,000 in 1995, $1,001,000 in 1994 and $2,107,000 in 1993. Interest income
from impaired loans included in the accompanying Statements of Income and
Expenses amounted to approximately $480,000 ($567,000 cash basis) in 1995,
$1,001,000 ($994,000 cash basis) in 1994 and $1,201,000 in 1993.
Jonathan's Landing impaired loan balance of $10,865,000 at December 31, 1994
had a related allowance for losses of $1,166,260.
<PAGE>
5. Allowances for Losses on Loans and Real Estate Held for Sale:
Activity recorded in the allowances for losses on loans and real estate held
for sale during the three years ended December 31, 1995 is described in the
table below.
1995 1994 1993
------------ ----------- -----------
Loans:
Balance at beginning of
year $ 1,166,260 $ 5,854,326 $ 6,104,326
Provision charged to
income None None 750,000
Recovery of provision
previously charged
to income None (1,137,000) None
Direct write-off of
loans against allowance (1,166,260) (3,551,066) (1,000,000)
------------ ----------- -----------
Balance at the end of
the year None $ 1,166,260 $ 5,854,326
============ =========== ===========
Real Estate Held for Sale:
Balance at beginning of
year $ 4,537,000 $ 3,400,000 None
Provision charged to
income None 1,137,000 $ 3,400,000
----------- ----------- -----------
Balance at the end of
the year $ 4,537,000 $ 4,537,000 $ 3,400,000
=========== =========== ===========
6. Mortgage Note Payable:
In October 1993, the Partnership and an affiliate purchased the Sand Pebble
Village Apartments - Phase II which had a carrying value of $9,357,449 at
December 31, 1994. The Partnership obtained a $5,000,000 first mortgage loan
collateralized by the property from an unaffiliated lender in connection with
the purchase. At December 31, 1995 and 1994, the loan had a balance of
$4,887,630 and $4,941,641, respectively. The loan bears interest at a rate of
7.11% per annum and requires monthly payments of principal and interest of
$33,635. The loan matures in November 1998 with an estimated balloon payment of
$4,718,000. During 1995 and 1994, the Partnership incurred and paid interest
expense on the mortgage note payable of $349,613 and $353,309, respectively.
Future annual maturities of the above mortgage note payable during each of the
next three years are approximately as follows:
1996 $ 58,000
1997 62,000
1998 4,768,000
<PAGE>
7. Management Agreements:
As of December 31, 1995, all of the properties owned by the Partnership are
managed by third-party management companies. These management agreements
provide for annual fees of 5% of gross operating receipts for residential
properties and a range of 3% to 6% of gross operating receipts for commercial
properties.
8. Transactions with Affiliates:
Commissions, fees and expenses paid and payable by the Partnership to
affiliates are:
Year Ended Year Ended Year Ended
12/31/95 12/31/94 12/31/93
-------------- -------------- --------------
Paid Payable Paid Payable Paid Payable
------ ------- ------ ------- ------ -------
Mortgage servicing fees $17,013 None $71,178 $2,264 $114,667 $9,097
Property management fees None None 477,796 None 303,566 36,023
Reimbursement of expenses
to the General Partner
at cost:
Accounting 41,452 4,120 70,376 16,061 57,724 4,773
Data processing 29,144 3,158 49,777 10,164 68,440 16,598
Investor communica-
tions 9,035 None 22,578 7,610 11,764 973
Legal 11,955 1,525 8,591 2,647 5,747 475
Portfolio management 129,125 17,813 59,323 25,221 55,492 4,588
Other 9,075 None 17,005 5,885 18,897 1,542
Allegiance Realty Group, Inc., an affiliate of the General Partner managed all
of the Partnership's properties until the affiliate was sold to a third party
in November 1994.
The Partnership participates in an insurance deductible program with other
affiliated partnerships in which the program pays claims up to the amount of
the deductible under the master insurance policies for its properties. The
program is administered by an affiliate of the General Partner who receives no
fee for administering the program; however, the General Partner is reimbursed
for program expenses. The Partnership paid premiums to the deductible insurance
program of $66,840, $99,135, and $52,865 for 1995, 1994 and 1993, respectively.
9. Affiliates' Participation in Joint Ventures:
The Partnership has classified the first mortgage loan investment
collateralized by the Whispering Hills Apartments as real estate held for sale.
This investment is owned by the Partnership and an affiliate. Profits and
losses are allocated 75% to the Partnership and 25% to the affiliate. In
September 1994, the joint venture received $1,000,000 as a result of the
settlement of litigation which was used to reduce the basis of the property. Of
this amount, $250,000 was distributed to the affiliate for its share of the
settlement.
<PAGE>
The Sand Pebble Village Phase I and the Sand Pebble Village - Phase II
apartment complexes are owned by the Partnership and an affiliate. Profits and
losses are allocated 55.36% to the Partnership and 44.64% to the affiliate.
Jonathan's Landing Apartments is owned by the Partnership and an affiliate.
Profits and losses are allocated 53% to the Partnership and 47% to the
affiliate.
All assets, liabilities, income and expenses of the joint ventures are included
in the financial statements of the Partnership with the appropriate adjustment
of profit or loss for each affiliate's participation.
Distributions of $1,238,784. $1,479,385 and $1,032,696 were made to the joint
venture partners during 1995, 1994 and 1993, respectively. In 1993, the Sand
Pebble Village Apartments - Phase II joint venture partner made contributions
of $1,932,910 for its share of the acquisition costs of the apartment complex.
In addition, the joint venture partner of the Sand Pebble Village - Phase I
apartment complex was allocated $512,000 and $1,517,420 during 1994 and 1993,
respectively, as its' share of a provision for potential losses.
10. Real Estate Held for Sale:
The Partnership acquired the following properties through foreclosure:
Jonathan's Landing Apartments was acquired in July 1995; Butler Plaza Shopping
Center was acquired in January 1995 and classified as real estate held for sale
at December 31, 1994; and Hickory Creek Apartments - Phases I and II was
acquired in March 1994. The Partnership recorded the costs of the properties at
$18,299,740, $9,100,000 and $10,338,837 in 1995, 1994 and 1993, respectively.
These amounts represented the outstanding loan balances plus any accrued
interest receivable. In addition, the Partnership increased the basis of the
properties by $283,490 in 1995 for costs incurred in connection with the
foreclosures. At the date of foreclosure, each property was transferred to real
estate held for sale at its fair value, net of allowances previously recorded.
The Partnership and an affiliate purchased the Sand Pebble Village Apartments -
Phase II in October 1993 for $9,300,000. The participants paid $4,300,000 in
cash as part of the purchase price of which the Partnership's share was
$2,380,480. The remainder of the purchase price was paid with the proceeds of a
$5,000,000 first mortgage loan. See Note 6 of Notes to Financial Statements for
additional information. An additional $57,449 in fees were paid by the
participants in connection with the purchase, of which the Partnership's share
was $31,804. These fees were capitalized to the basis of the property.
11. Contingency:
The Partnership is currently involved in a lawsuit whereby the Partnership and
certain affiliates have been named as defendants alleging certain federal
securities law violations with regard to the adequacy and accuracy of
disclosures of information concerning the offering of the Limited Partnership
Interests of the Partnership. The defendants continue to vigorously contest
this action. While a plaintiff class has been certified, no determinations of
the merits have been made. 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. Management of each of the defendants believes they have
meritorious defenses to contest the claims.
<PAGE>
12. Fair Value of Financial Instruments:
The carrying amounts and fair values of the Partnership's financial instruments
at December 31, 1995 are as follows:
The carrying value of cash and cash equivalents, accounts and accrued interest
receivable, and accounts payable approximates fair value.
Mortgage note payable: Based on borrowing rates available to the Partnership at
the end of 1995 for mortgage loans with similar terms and maturities, the fair
value of the mortgage note payable approximates the carrying value.
13. Subsequent Event:
In January 1996, the Partnership paid $1,384,410 ($3.00 per Interest) to the
holders of Limited Partnership Interests representing a regular quarterly
distribution of available Cash Flow for the fourth quarter of 1995.<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 8596
<SECURITIES> 0
<RECEIVABLES> 189
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