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, 1998
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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
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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 ]
<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 has
retained cash reserves from the sale of its real estate investments for
contingencies which exist or may arise. The Registrant's operations currently
consist of interest income earned on short-term investments and the payment of
administrative expenses.
The Registrant originally funded eight loans. Five properties were acquired
through foreclosure. In addition, one property adjacent to a property acquired
through foreclosure was purchased by the Registrant. The Registrant has since
disposed of all of these investments.
The Partnership Agreement provides for the dissolution of the Registrant upon
the occurrence of certain events, including the disposition of all interests in
real estate. The Registrant sold its final real estate investment in June 1997.
The Registrant has retained a portion of the cash from the sale of its real
estate investments to satisfy obligations of the Registrant as well as
establish a reserve for contingencies. The timing of the termination of the
Registrant and final distribution of cash will depend upon the nature and
extent of liabilities and contingencies which exist or may arise. Such
contingencies may include legal and other fees and costs stemming from
litigation involving the Registrant including, but not limited to, the lawsuit
discussed in "Item 3. Legal Proceedings". Due to this litigation, the
Registrant will not be dissolved and reserves will be held by the Registrant
until the conclusion of all contingencies. There can be no assurances as to the
time frame for conclusion of these contingencies.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" for information regarding the
Registrant's Year 2000 readiness.
The Registrant no longer has an ownership interest in any real estate
investments. 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 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, 1998, 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.
<PAGE>
See Notes to Financial Statements for other information regarding former real
property investments.
Item 3. Legal Proceedings
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Dee vs. Walton Street Capital Acquisition II, LLC
- -------------------------------------------------
On June 14, 1996, a proposed class and derivative action complaint was filed,
Dee vs. Walton Street Capital Acquisition II, LLC (Circuit Court of Cook
County, Illinois, County Department, Chancery Division ("Chancery Court"), Case
No. 96 CH 06283) (the "Dee Case"), naming the General Partner and the general
partners (the "Balcor Defendants") of nine other limited partnerships sponsored
by The Balcor Company (together with the Registrant, the "Affiliated
Partnerships"), as well as the Affiliated Partnerships, as defendants.
Additional defendants were Insignia Management Group ("Insignia") and Walton
Street Capital Acquisition II, LLC ("Walton") and certain of their affiliates
and principals (collectively, the "Walton and Insignia Defendants"). The
complaint alleged, among other things, that the tender offers for the purchase
of limited partnership interests in the Affiliated Partnerships made by a joint
venture consisting of affiliates of Insignia and Walton were coercive and
unfair.
On July 1, 1996, another proposed class action complaint was filed in the
Chancery Court, Anderson vs. Balcor Mortgage Advisors (Case No. 96 CH 06884)
(the "Anderson Case"). An amended complaint consolidating the Dee and Anderson
Cases (the "Dee/Anderson Case") was filed on July 25, 1996.
The complaint seeks to assert class and derivative claims against the Walton
and Insignia Defendants and alleges that, in connection with the tender offers,
the Walton and Insignia Defendants misused the Balcor Defendants' and
Insignia's fiduciary positions and knowledge in breach of the Walton and
Insignia Defendants' fiduciary duty and in violation of the Illinois Securities
and Consumer Fraud Acts. The plaintiffs amended their complaint on October 8,
1996, adding additional claims. The plaintiffs requested certification as a
class and derivative action, unspecified compensatory damages and rescission of
the tender offers. Each of the defendants filed motions to dismiss the
complaint for failure to state a cause of action. On January 7, 1997, the
Chancery Court denied the plaintiffs' motion for leave to amend the complaint
and dismissed the matter for failure to state a cause of action, with
prejudice.
On February 3, 1997, the plaintiffs filed a Notice of Appeal of the Chancery
Court's order to the Appellate Court of Illinois. Oral arguments before the
Appellate Court were held on March 18, 1998. On November 12, 1998, the
Appellate Court issued an opinion affirming the Chancery Court's dismissal of
the case. On December 3, 1998, the plaintiffs filed a notice of intent to
appeal the Appellate Court's ruling to the Illinois Supreme Court.
The Balcor Defendants intend to vigorously contest this action. No class has
been certified as of this date. The Registrant believes it has meritorious
defenses to contest the claims. It is not determinable at this time how the
outcome of this action will impact the remaining cash reserves of the
Registrant.
<PAGE>
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 1998.
<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 "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
As of December 31, 1998, the number of record holders of Limited Partnership
Interests of the Registrant was 14,966.
Item 6. Selected Financial Data
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Year ended December 31,
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1998 1997 1996 1995 1994
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Total income $1,284,498$1,580,407 $8,479,046 $7,382,764 $9,012,908
Recovery of losses on
loans, real estate
and accrued interest
receivable None None 2,080,943 None 1,137,000
Provision for
potential losses on
loans, real estate
and accrued interest
receivable None None 3,935,000 None 1,137,000
Income before extra-
ordinary item 1,013,243 8,240,101 7,248,516 5,424,542 6,238,369
Net income 1,013,243 8,240,101 7,167,815 5,424,542 6,238,369
Net income per
Limited Partnership
Interest-Basic and
Diluted 2.05 13.53 13.97 10.58 12.17
Total assets 1,875,388 2,009,724 43,826,611 94,180,552 89,991,386
Mortgage note
payable None None None 4,887,630 4,941,641
Distributions per
Limited Partnership
Interest (A) 2.38 99.10(B) 72.16 20.48 12.00
(A) These amounts include distributions of original capital of $1.20, $92.60,
$58.16 and $11.48 per Limited Partnership Interest for the years 1998, 1997,
1996 and 1995, respectively.
<PAGE>
(B) In addition to the distributions noted above, a special distribution of
$0.22 per Interest was paid to class members including certain current
investors in the Partnership pursuant to the settlement of a class action
lawsuit.
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") sold four real estate
investments during 1996 and sold its remaining three real estate investments in
1997. During 1998, the operations of the Partnership consisted primarily of
interest income earned on short-term investments, income resulting from the
release to the Partnership of escrow funds in connection with the sale of the
U.S. West Direct Center Office Building and income received in connection with
the settlement of the Butler Plaza Shopping Center condemnation proceedings,
which were partially offset by the payment of administrative expenses. As a
result of the sales of the Partnership's remaining properties in 1997 and the
net gains recognized in connection with the sales, net income decreased during
1998 as compared to 1997. The Partnership recognized net gains in connection
with the 1997 and 1996 sales and income from operations of real estate held for
sale decreased during 1997 as compared to 1996. During 1996, the Partnership
recognized a recovery of a previously established loss allowance related to the
sale of Sand Pebble Village - Phase I Apartments and also recognized a
provision for potential losses related to the Butler Plaza Shopping Center. The
combined effect of these events resulted in an increase in net income during
1997 as compared to 1996. Further discussion of the Partnership's operations is
summarized below.
1998 Compared to 1997
- ---------------------
During 1997, the Partnership sold its three remaining properties, the U.S. West
Direct Center Office Building, the Butler Plaza Shopping Center and the loan
collateralized by Whispering Hills Apartments, which was accounted for as real
estate held for sale, and recognized net gains in connection with these sales
of $7,887,309. These properties were generating income prior to their sales in
1997. The Partnership paid certain expenditures in 1998 related to certain of
these sold properties which is the reason the Partnership recognized a loss
from operations of real estate held for sale during 1998.
Primarily as a result of higher average cash balances in 1997 due to the
investment of proceeds received from the 1997 and 1996 property sales prior to
distribution to the partners in January and April 1997, interest income on
short-term investments decreased during 1998 as compared to 1997.
<PAGE>
During 1998, the Partnership received $554,250 relating to the 1996
condemnation of a portion of the land at the Butler Plaza Shopping Center. The
Partnership also received $560,000 during 1998 in connection with the receipt
of an escrow related to the sale of the U.S. West Direct Center Office
Building, which was recognized as a reduction of the gain in the prior year.
During 1997, the Partnership received partial refunds of prior years' insurance
premiums relating to the Partnership's properties. These amounts have been
recognized as other income for financial statement purposes.
The Partnership incurred lower legal, accounting and portfolio management fees
and bank charges during 1998 as compared to 1997. In addition, during February
1997, the General Partner made a payment relating to the settlement of certain
litigation to original investors who previously sold their Interests in the
Partnership which was accounted for as an administrative expense. As a result,
administrative expenses decreased during 1998 as compared to 1997.
Provisions were charged to income when the General Partner believed an
impairment had occurred to the value of its properties. Determinations of fair
value were made periodically, but not less than annually, on the basis of
assessments of property operations and estimated sales prices less closing
costs. Determinations of fair value represented estimates based on many
variables which affect the value of real estate, including economic and
demographic conditions. During 1997, the Partnership wrote off $3,935,000 of a
previously established loss allowance in connection with the sale of the Butler
Plaza Shopping Center.
The Whispering Hills Apartments was owned by a joint venture with an affiliate.
As a result of the sale of this property during 1997, affiliate's participation
in income of joint venture ceased during 1997.
1997 Compared to 1996
- ---------------------
The Partnership sold the Sand Pebble Village - Phases I and II, Hickory Creek
and Jonathan's Landing apartment complexes during 1996 and recognized net gains
in connection with these sales of $8,104,310. The Partnership sold its three
remaining properties in 1997, as described above. All of these properties were
generating income from operations prior to their sales. As a result, income
from operations of real estate held for sale decreased during 1997 as compared
to 1996.
The Partnership had lower average cash balances during 1997 due to less
proceeds received from property sales than in 1996. This resulted in a decrease
in interest income on short-term investments during 1997 as compared to 1996.
During 1996, the Partnership recognized a provision for potential loss of
$3,935,000 to provide for a decline in the estimate of the fair value of the
Butler Plaza Shopping Center. During 1996, the Partnership also recognized a
recovery of $2,080,943 and wrote off $2,456,057 of a previously established
loss allowance as a result of the sale of Sand Pebble Village Apartments -
Phase I. The minority joint venture partner's share of the recovery was
$928,725.
<PAGE>
The Partnership incurred higher consulting, investor processing, printing and
postage costs in connection with its response to a tender offer during 1996. As
a result, administrative expense decreased during 1997 as compared to 1996.
The Jonathan's Landing, Sand Pebble Village - Phases I and II and Whispering
Hills apartment complexes were owned by joint ventures with affiliates. During
1996, the Partnership recognized gains on the sales of the Sand Pebble Village
- - Phase II and the Jonathan's Landing apartment complexes, the minority joint
venture partner's share of which was $1,097,289 and $999,473, respectively. In
addition, the Partnership recognized a recovery of a previously established
loss allowance in connection with the sale of the Sand Pebble Village
Apartments - Phase I, the minority joint venture partner's share of which was
$928,725. The combined effect of these events resulted in a decrease in
affiliates' participation in income from joint ventures during 1997 as compared
to 1996. This decrease was partially offset by a gain recognized on the 1997
sale of the Whispering Hills Apartments, the minority joint venture partner's
share of which was $499,141.
In connection with the 1996 sale of Sand Pebble Village Apartments - Phase II,
the Partnership incurred a prepayment penalty of $145,775 which was recognized
as debt extinguishment expense and classified as an extraordinary item. The
minority joint venture partner's share of the extraordinary item was $65,074.
Liquidity and Capital Resources
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The cash position of the Partnership decreased by approximately $118,000 as of
December 31, 1998, when compared to December 31, 1997. Cash flow provided by
operating activities of approximately $1,041,000 consisted primarily of the
receipt of escrow funds in connection with the sale of the U.S. West Direct
Center Office Building, income received in connection with the settlement of
the Butler Plaza Shopping Center condemnation proceedings and interest income
earned on short-term investments which were partially offset by the payment of
administrative and operating expenses related to sold properties. Cash of
approximately $1,159,000 was used in financing activities to pay a distribution
to the Partners.
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. The Partnership sold its final real estate investment in June
1997. The Partnership has retained a portion of the cash from the sale of its
real estate investments to satisfy obligations of the Partnership as well as
establish a reserve for contingencies. The timing of the termination of the
Partnership and final distribution of cash will depend upon the nature and
extent of liabilities and contingencies which exist or may arise. Such
contingencies may include legal and other fees and costs stemming from
litigation involving the Partnership including, but not limited to, the lawsuit
discussed in "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 all contingencies. There can be no assurances as to the
time frame for conclusion of these contingencies.
<PAGE>
In 1997, the Partnership sold the U.S. West Direct Center Office Building.
Pursuant to the terms of the sale, $1,100,000 of the proceeds was placed in
escrow. Of this amount, $540,000 was paid to the Partnership in 1997. The
remaining $560,000 was held in escrow to be used for the potential payment of
costs relating to the removal of soil contamination at the property. This
amount remained in escrow until November 1998, at which time it was released to
the Partnership in full, along with accrued interest of $45,588.
In 1996, the Partnership was awarded $300,300 in connection with the
condemnation of a portion of the land at the Butler Plaza Shopping Center and
received $113,900 at that time. The Partnership as well as tenants at the
property were parties to the condemnation proceedings. In 1997, the Partnership
agreed to resolve the land condemnation and received an additional award of
$367,850 bringing the total amount of the award to $668,150. The Partnership
received the remaining $554,250 during 1998 after certain issues with the
tenants at the property were resolved.
In February 1997, the Partnership discontinued the repurchase of Interests from
Limited Partners. As of December 31, 1998, there were 18,456 Interests and cash
of $1,592,852 in the Early Investment Incentive Fund.
The Partnership made distributions in 1998, 1997 and 1996 totaling $2.38,
$99.10 and $72.16 per Limited Partnership Interest, respectively. See
Statements of Partners' Capital for additional information. Distributions per
Interest were comprised of $1.18 of Cash Flow and $1.20 of Mortgage Reductions
in 1998, $6.50 of Cash Flow and $92.60 of Mortgage Reductions in 1997 and
$14.00 of Cash Flow and $58.16 of Mortgage Reductions in 1996.
In December 1998, the Partnership paid a distribution of $1,098,299 ($2.38 per
Interest) to the holders of Limited Partnership Interests consisting of Cash
Flow of $1.18 per Interest and Mortgage Reductions of $1.20 per Interest. This
distribution represents available proceeds from the release of the U.S. West
Direct Center Office Building escrow and the Butler Plaza Shopping Center
condemnation proceeds. Including the December 1998 distribution, Limited
Partners have received distributions of $124.24 of Cash Flow from operations
and a return of Original Capital of $188.29, totaling $312.53 per $250
Interest. In December 1998, the Partnership also paid $45,419 to the General
Partner as its distributive share of the Cash Flow distributed and made a
contribution to the Early Investment Incentive Fund of $15,140. 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. Amounts allocated to the Early Investment
Incentive Fund will also be distributed at that time.
The Partnership sold all of its remaining real property investments and
distributed a majority of the proceeds from these sales to Limited Partners in
1996 and 1997. Since the Partnership no longer has any operating assets, the
number of computer systems and programs necessary to operate the Partnership
has been significantly reduced. The Partnership relies on third party vendors
to perform most of its functions and has implemented a plan to determine the
Year 2000 compliance status of these key vendors. The Partnership is within its
timeline for having these plans completed prior to the year 2000.
<PAGE>
The Partnership's plan to determine the Year 2000 compliance status of its key
vendors involves the solicitation of information from these vendors through the
use of surveys, follow-up discussions and review of data where needed. The
Partnership has sent out surveys to these vendors and received back a majority
of these surveys. While the Partnership cannot guarantee Year 2000 compliance
by its key vendors, and in many cases will be relying on statements from these
vendors without independent verification, preliminary surveys indicate that the
key vendors performing services for the Partnership are aware of the issues and
are working on a solution to achieve compliance before the year 2000. The
Partnership is in the process of developing a contingency plan in the event any
of its key vendors are not Year 2000 compliant prior to the year 2000. As part
of its contingency plan, the Partnership will identify replacement vendors in
the event that current vendors are not substantially Year 2000 compliant by
June 30, 1999. The Partnership does not believe that failure by any of its key
vendors to be Year 2000 compliant by the year 2000 would have a material effect
on the business, financial position or results of operations of the
Partnership.
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
- -------------------------------------------------------------------
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.
Item 9. Changes in and Disagreements with Accountants on Accounting and
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Financial Disclosure
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There have been no changes in or disagreements with accountants on any matter
of accounting principles, practices or financial statement disclosure.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
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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 Managing Director, Chief Jayne A. Kosik
Financial Officer, Treasurer
and Assistant Secretary
Thomas E. Meador (age 51) 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 a 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 Grubb & Ellis Company, a publicly
traded commercial real estate firm. Mr. Meador was elected to the Board of
Grubb & Ellis Company in May 1998. Mr. Meador is also a director 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.
Alexander J. Darragh (age 44) joined Balcor in September 1988 and is
responsible for real estate advisory services for Balcor and American Express
Company. Mr. Darragh received masters' degrees in Urban Geography from Queen's
University and in Urban Planning from Northwestern University.
Jayne A. Kosik (age 41) 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.
<PAGE>
(f) None of the foregoing officers or employees are currently involved in any
material legal proceedings nor were any such proceedings terminated during the
fourth quarter of 1998.
Item 11. Executive Compensation
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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 8 of Notes to Financial Statements for
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 18,456 Interests 4%
Interests
Relatives of the officers and affiliates of the partners of the General Partner
do not own any additional Interests.
In addition, Balcor LP Corp., an affiliate of the General Partner, holds title
to 349 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.
<PAGE>
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 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 Quarterly Report
on Form 10-Q for the quarter ended June 30, 1992 (Commission File No. 0-15528)
are incorporated herein by reference.
(10) Material Contracts:
(a)(i) Agreement to Purchase Loan Documents relating to the sale of the loan
collateralized by the Whispering Hills Apartments, Overland Park, Kansas,
previously filed as Exhibit (10)(g) to the Registrant's Quarterly Report on
Form 10-Q dated March 31, 1997, is incorporated herein by reference.
(ii) First Amendment to Agreement to Purchase Loan Documents related to the
sale of the loan collateralized by the Whispering Hills Apartments, Overland
Park, Kansas, previously filed as Exhibit (10)(g)(ii) to the Registrant's
Quarterly Report on Form 10-Q dated June 30, 1997, is incorporated herein by
reference.
(27) Financial Data Schedule of the Registrant for 1998 is attached hereto.
(b) Reports on Form 8-K: No reports on Form 8-K were filed by the Registrant
during the quarter ended December 31, 1998.
(c) Exhibits: See Item 14(a)(3) above.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 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/ Jayne A. Kosik
--------------------------------
Jayne A. Kosik
Senior Managing Director and Chief
Financial Officer (Principal Accounting
and Financial Officer) of Balcor Mortgage
Advisors-VII, the General Partner
Date: March 19, 1999
--------------
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
Advisors-VII, the General Partner
/s/ Thomas E. Meador March 19, 1999
- -------------------- --------------
Thomas E. Meador
Senior Managing Director and Chief
Financial Officer (Principal
Accounting and Financial Officer)
of Balcor Mortgage Advisors-VII,
/s/ Jayne A. Kosik the General Partner March 19, 1999
- ------------------ --------------
Jayne A. Kosik
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants
Financial Statements:
Balance Sheets, December 31, 1998 and 1997
Statements of Partners' Capital, for the years ended December 31, 1998, 1997
and 1996
Statements of Income and Expenses, for the years ended December 31, 1998, 1997
and 1996
Statements of Cash Flows, for the years ended December 31, 1998, 1997 and 1996
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:
In our opinion, the accompanying balance sheets and the related statements of
partners' capital, of income and expenses and of cash flows present fairly, in
all material respects, the financial position of Balcor Pension Investors-VII
An Illinois Limited Partnership (the "Partnership") at December 31, 1998 and
1997, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles. 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 generally accepted
auditing standards 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 disposition of all its
real estate interests. As of December 31, 1998, the Partnership no longer has
an ownership interest in any real estate investment. Upon resolution of the
litigation described in Note 14 to the financial statements, the Partnership
intends to cease operations and dissolve.
PricewaterhouseCoopers LLP
Chicago, Illinois
March 17, 1999
<PAGE>
BALCOR PENSION INVESTORS - VII
(AN ILLINOIS LIMITED PARTNERSHIP)
BALANCE SHEETS
December 31, 1998 and 1997
ASSETS
1998 1997
-------------- --------------
Cash and cash equivalents $ 1,865,288 $ 1,983,142
Accounts and accrued interest receivable 10,100 26,582
-------------- --------------
$ 1,875,388 $ 2,009,724
============== ==============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 26,759 $ 24,673
Due to affiliates 50,964 41,771
-------------- --------------
Total liabilities 77,723 66,444
-------------- --------------
Commitments and contingencies
Limited Partners' capital (461,470
Interests issued and outstanding) 1,906,513 2,058,244
General Partner's deficit (108,848) (114,964)
-------------- --------------
Total partners' capital 1,797,665 1,943,280
-------------- --------------
$ 1,875,388 $ 2,009,724
============== ==============
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, 1998, 1997, and 1996
Partners' Capital (Deficit) Accounts
------------------------------------------
General Limited
Total Partner Partners
------------- ------------- -------------
Balance at December 31, 1995 $ 66,575,313 $ (1,894,580) $ 68,469,893
Cash distributions to:
Limited Partners (A) (33,299,674) (33,299,674)
General Partner (717,842) (717,842)
Net income for the year
ended December 31, 1996 7,167,815 716,782 6,451,033
------------- ------------- -------------
Balance at December 31, 1996 39,725,612 (1,895,640) 41,621,252
Cash distributions to:
Limited Partners (A) (45,804,516) (45,804,516)
General Partner (333,285) (333,285)
Cash contribution 115,368 115,368
Net income for the year
ended December 31, 1997 8,240,101 1,998,593 6,241,508
------------- ------------- -------------
Balance at December 31, 1997 1,943,280 (114,964) 2,058,244
Cash distributions to:
Limited Partners (A) (1,098,299) (1,098,299)
General Partner (60,559) (60,559)
Net income for the year
ended December 31, 1998 1,013,243 66,675 946,568
------------- ------------- -------------
Balance at December 31, 1998 $ 1,797,665 $ (108,848) $ 1,906,513
============= ============= =============
(A) Summary of cash distributions paid per Limited Partnership Interest:
1998 1997 1996
------------ ------------ -------------
First Quarter None $24.00(B) $3.00
Second Quarter None 9.90 5.16
Third Quarter None 37.00 3.00
Fourth Quarter $2.38 28.20 61.00
(B) In addition to the distribution noted above, a special distribution
of $0.22 per Interest was paid to class members including certain
current investors in the Partnership pursuant to the settlement of a
a class action lawsuit.
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, 1998, 1997, and 1996
1998 1997 1996
------------- ------------- -------------
Income:
(Loss) income from operations
of real estate held for
sale $ (6,941) $ 917,073 $ 5,629,880
Interest on short-term
investments 177,189 659,774 768,223
Recovery of losses on
real estate held for sale 2,080,943
Other income 1,114,250 3,560
------------- ------------- -------------
Total income 1,284,498 1,580,407 8,479,046
------------- ------------- -------------
Expenses:
Provision for potential
losses on real estate
held for sale 3,935,000
Administrative 271,255 567,821 880,486
------------- ------------- -------------
Total expenses 271,255 567,821 4,815,486
------------- ------------- -------------
Income before gain on sales,
affiliates' participation in
income of joint ventures and
extraordinary item 1,013,243 1,012,586 3,663,560
Net gain on sales of real estate 7,887,309 8,104,310
Affiliates' participation in
income of joint ventures (659,794) (4,519,354)
------------- ------------- -------------
Income before extraordinary
item 1,013,243 8,240,101 7,248,516
------------- ------------- -------------
Extraordinary item:
Debt extinguishment expense (145,775)
Affiliate's participation in
debt extinguishment expense 65,074
-------------
Total extraordinary item (80,701)
------------- ------------- -------------
Net income $ 1,013,243 $ 8,240,101 $ 7,167,815
============= ============= =============
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, 1998, 1997, and 1996
(Continued)
1998 1997 1996
------------- ------------- -------------
Income before extraordinary item
allocated to General Partner $ 66,675 $ 1,998,593 $ 724,852
============= ============= =============
Income before extraordinary item
allocated to Limited Partners $ 946,568 $ 6,241,508 $ 6,523,664
============= ============= =============
Income before extraordinary
item per Limited Partnership
Interest (461,470 issued and
outstanding) - Basic and
Diluted $ 2.05 $ 13.53 $ 14.13
============= ============= =============
Extraordinary item allocated to
General Partner None None $ (8,070)
============= ============= =============
Extraordinary item allocated to
Limited Partners None None $ (72,631)
============= ============= =============
Extraordinary item allocated per
Limited Partnership Interest
(461,470 issued and
outstanding) - Basic and
Diluted None None $ (0.16)
============= ============= =============
Net income allocated to
General Partner $ 66,675 $ 1,998,593 $ 716,782
============= ============= =============
Net income allocated to
Limited Partners $ 946,568 $ 6,241,508 $ 6,451,033
============= ============= =============
Net income allocated per Limited
Partnership Interest (461,470
issued and outstanding) -
Basic and Diluted $ 2.05 $ 13.53 $ 13.97
============= ============= =============
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, 1998, 1997, and 1996
1998 1997 1996
------------- ------------- -------------
Operating activities:
Net income $ 1,013,243 $ 8,240,101 $ 7,167,815
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Affiliates'
participation in income
of joint ventures 659,794 4,519,354
Affiliate's participation
in debt extinquishment
expense (65,074)
Net gain on sales of
real estate (7,887,309) (8,104,310)
Amortization of
deferred expenses 215,662 25,522
Recovery of losses on
real estate held for sale (2,080,943)
Provision for potential
losses on real estate
held for sale 3,935,000
Payment of leasing
commissions (145,488)
Net change in:
Escrow deposits 80,519
Accounts and accrued
interest receivable 16,482 385,130 (223,074)
Prepaid expense 61,204 59,698
Accounts payable 2,086 (226,452) 1,493
Due to affiliates 9,193 (46,645) 61,800
Accrued liabilities (106,465) (175,311)
Security deposits (70,823) (339,795)
------------- ------------- -------------
Net cash provided by
operating activities 1,041,004 1,078,709 4,862,694
------------- ------------- -------------
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, 1998, 1997, and 1996
(Continued)
1998 1997 1996
------------- ------------- -------------
Investing activities:
Proceeds relating to land
condemnation $ 113,900
Proceeds from sales of
real estate $ 35,340,000 67,100,000
Payment of selling costs (1,096,914) (1,850,620)
Improvements to properties (369,518)
------------- -------------
Net cash provided by
investing activities 33,873,568 65,363,280
------------- -------------
Financing activities:
Distributions to Limited
Partners $ (1,098,299) (45,804,516) (33,299,674)
Distributions to General
Partner (60,559) (333,285) (717,842)
Contribution by General Partner 115,368
Distributions to joint
venture partners -
affiliates (4,243,964) (22,619,077)
Repayment of mortgage
note payable (4,859,155)
Principal payments on mortgage
note payable (28,475)
------------- ------------- -------------
Net cash used in financing
activities (1,158,858) (50,266,397) (61,524,223)
------------- ------------- -------------
Net change in cash and cash
equivalents (117,854) (15,314,120) 8,701,751
Cash and cash equivalents at
beginning of year 1,983,142 17,297,262 8,595,511
------------- ------------- -------------
Cash and cash equivalents at
end of year $ 1,865,288 $ 1,983,142 $ 17,297,262
============= ============= =============
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. Nature of the Partnership's Business:
Balcor Pension Investors-VII (the "Partnership") has retained cash reserves
from the disposition of its investments for contingencies which exist or may
arise. The Partnership's operations currently consist of interest income
earned on short-term investments and the payment of administrative expenses.
2. Partnership Termination:
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. The Partnership sold its final real estate investment in June
1997. The Partnership has retained a portion of the cash from the sale of its
real estate investments to satisfy obligations of the Partnership as well as
establish a reserve for contingencies. The timing of the termination of the
Partnership and final distribution of cash will depend upon the nature and
extent of liabilities and contingencies which exist or may arise. Such
contingencies may include legal and other fees and costs stemming from
litigation involving the Partnership including, but not limited to, the lawsuit
discussed in Note 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 all contingencies. There can be no
assurances as to the time frame for conclusion of these 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) Income from operations of real estate held for sale was reflected in the
accompanying Statements of Income and Expenses net of related direct operating
expenses.
(c) The General Partner periodically assessed, but not less than on an annual
basis, the fair value of its real estate properties held for sale. The General
Partner estimated the fair value of its properties based on the current sales
price less estimated closing costs. Changes in the property's fair value were
recorded by an adjustment to the property allowance account and were recognized
in the income statement as an increase or decrease through recovery income or a
provision for loss in the period the change in fair value was determined. The
General Partner considered the methods referred to above to result in a
reasonable measurement of a property's fair value, unless other factors
affecting the property's value indicated otherwise.
<PAGE>
(d) Deferred expenses consisted of leasing commissions which were amortized
over the life of each respective lease. Upon disposition of a property, the
remaining unamortized balance was recognized as amortization expense.
(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 was recognized on a straight line
basis over the term of the respective lease. Service income included
reimbursements for operating costs such as real estate taxes, maintenance and
insurance and was recognized as revenue in the period the applicable costs were
incurred.
(f) 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.
(g) Cash and cash equivalents include all unrestricted, highly liquid
investments with an original maturity of three months or less. Cash is held or
invested in one financial institution.
(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) For financial statement purposes, prior to 1997, the partners were
allocated income and losses in accordance with the provisions in the
Partnership Agreement. 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.
(j) Statement of Financial Accounting Standards, No. 128, "Earnings Per Share"
was adopted by the Partnership effective for the year-ended December 31, 1997
and has been applied to the prior earnings period presented in the financial
statements. Since the Partnership has no dilutive securities, there is no
difference between basic and diluted net income per Limited Partnership
Interest.
(k) Certain reclassifications of prior years information were made to conform
to the 1998 presentation.
4. Partnership Agreement:
The Partnership was organized on October 25, 1985. The Partnership Agreement
provided 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>
Pursuant to the Partnership Agreement, the 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. For financial statement purposes, prior
to 1997, the partners were allocated income and losses in accordance with the
provisions in the Partnership Agreement. 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.
To the extent that Cash Flow was distributed, distributions were made as
follows: (i) 90% was distributed to the Limited Partners, (ii) 7.5% was
distributed to the General Partner, and (iii) an additional 2.5% was
distributed to the General Partner and constitutes the Early Investment
Incentive Fund (the "Fund"). Amounts placed in the Fund were available, at the
sole discretion of the General Partner and subject to certain limitations, to
be used to repurchase Interests from existing Limited Partners. Distributions
of Cash Flow and Mortgage Reductions pertaining to such repurchased Interests
were paid to the Fund and were available to repurchase additional Interests.
In February 1997, the Partnership discontinued the repurchase of Interests from
Limited Partners. 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 2.5% share originally allocated to the Fund. As of December
31, 1998, there were 18,456 Interests and cash of $1,592,852 in the Early
Investment Incentive Fund. All Limited Partners are Early Investors.
5. Allowances for Losses on Loans and Real Estate Held for Sale:
There was no activity recorded in the allowance for losses on loans during the
three years ended December 31, 1998.
Activity recorded in the allowance for losses on real estate held for sale
during the three years ended December 31, 1998 is described in the table below:
1998 1997 1996
------------ ----------- -----------
Balance at beginning of
year None $ 3,935,000 $ 4,537,000
Provision charged to
income None None 3,935,000
Recovery of provision
previously charged
to income None None (2,080,943)
Direct write-off of
loans against allowance None (3,935,000) (2,456,057)
----------- ----------- -----------
Balance at the end of
the year None None $ 3,935,000
=========== =========== ===========
6. Interest Expense:
During 1996, the Partnership incurred and paid interest expense on the Sand
Pebble Village Apartments - Phase II mortgage note payable of $202,127.
<PAGE>
7. Management Agreements:
The Partnership's properties were managed by third party management companies
prior to the sale of the properties. These management agreements provided for
annual fees of 5% of gross operating receipts for the residential properties
and 3% to 6% of gross operating receipts for the commercial properties.
8. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates are:
Year Ended Year Ended Year Ended
12/31/98 12/31/97 12/31/96
------------- ------------- --------------
Paid Payable Paid Payable Paid Payable
------------- ------------- --------------
Mortgage servicing fees None None $17,172 None $41,703 $2,453
Reimbursement of expenses
to the General Partner
at cost:
Accountin $14,296 $11,256 31,468 $8,822 15,468 10,460
Data processing 2,328 872 3,807 None 3,844 None
Legal 8,220 6,742 18,158 4,985 11,735 7,936
Portfolio managemen 39,596 32,094 101,652 27,913 79,836 56,585
Other 51 None 3,809 51 16,240 10,982
Prior to May 1995, the Partnership participated in an insurance deductible
program with other affiliated partnerships in which the program paid claims up
to the amount of the deductible under the master insurance policy for its
properties. The program was administered by an affiliate of the General Partner
(the Balcor Company) which received no fee for administering the program.
However, the General Partner was reimbursed for program expenses. The
Partnership paid premiums to the deductible insurance program relating to
claims for periods prior to May 1, 1995 of $23,141 for 1996.
The General Partner made a contribution of $115,368 in connection with the
settlement of certain litigation as further discussed in Note 11 of Notes to
Financial Statements.
9. Property Sales:
(a) In April 1997, the Partnership sold the U.S. West Direct Center Office
Building in an all cash sale for $14,250,000. Pursuant to the terms of the
sale, $1,100,000 of the proceeds was placed in escrow. Of this amount,
$540,000 was returned to the Partnership in September 1997 and the remaining
$560,000 of the sales proceeds was held in escrow to be used for the potential
payment of costs relating to the removal of soil contamination at the property.
This amount was recorded as a reduction in the sales price for financial
statement purposes at the date of sale. No amounts were expended and the full
amount of the escrow was returned to the Partnership in November 1998 and was
recognized as other income for financial statement purposes. The General
Partner believes that the Partnership will have no further liability relating
to environmental issues at the property. From the proceeds of the sale, the
Partnership paid $324,819 in selling costs. The basis of the property was
$6,812,133. For financial statement purposes, the Partnership recognized a
gain of $6,553,048 from the sale of the property.
<PAGE>
(b) In May 1997, the Partnership sold the Butler Plaza Shopping Center in an
all cash sale for $5,200,000. From the proceeds of the sale, the Partnership
paid $378,790 in selling costs. The basis of the property was $5,280,210, which
was net of a previously established allowance for potential losses of
$3,935,000, which was written off. The Partnership recognized a loss of
$459,000 from the sale of this property.
In 1996, the Partnership was awarded $300,300 in connection with the
condemnation of a portion of the land at the property. The Partnership as well
as tenants at the property were parties to the condemnation proceedings. In
1997, the Partnership agreed to resolve the land condemnation for an additional
$367,850. The Partnership received $113,900 in 1996, which was recorded as a
reduction to the carrying value of the property. The Partnership received the
remaining $554,250 during 1998. This amount was recognized as other income for
financial statement purposes.
(c) The loan collateralized by the Whispering Hills Apartments, which was
accounted for as real estate held for sale, was owned by a joint venture
consisting of the Partnership and an affiliate. The Partnership and the
affiliate held participating percentages in the joint venture of 75% and 25%,
respectively. In June 1997, the joint venture sold the loan in an all cash sale
for $17,200,000. From the proceeds of the sale, the joint venture paid $750,000
to the borrower in accordance with an amendment to the modified loan agreement
and $393,305 in selling costs. The basis of the property was $14,263,434. For
financial statement purposes, the Partnership recognized a gain of $1,793,261
from the sale of this property, of which $499,141 was the minority joint
venture partner's share.
(d) The Sand Pebble Village Apartments - Phase I was owned by a joint venture
consisting of the Partnership and an affiliate. The Partnership and the
affiliate held participating percentages in the joint venture of 55.37% and
44.63%, respectively. In August 1996, the joint venture sold the property in an
all cash sale for $19,411,765. From the proceeds of the sale, the joint venture
paid $431,822 in selling costs. The basis of the property was $16,899,000,
which was net of an allowance of $4,537,000. The Partnership had previously
established an allowance for potential losses related to the property against
which its remaining net investment of $2,456,057 was written off. The
Partnership recognized a recovery of the loss allowance of $2,080,943, of which
$928,725 was the minority joint venture partner's share. The Partnership
recognized no gain or loss on the sale of this property for financial statement
purposes.
(e) The Sand Pebble Village Apartments - Phase II was owned by a joint venture
consisting of the Partnership and an affiliate. The Partnership and the
affiliate held participating percentages in the joint venture of 55.37% and
44.63%, respectively. In August 1996, the joint venture sold the property in an
all cash sale for $12,088,235. From the proceeds of the sale, the joint venture
paid $4,859,155 to the third party mortgage holder in full satisfaction of the
first mortgage loan and $272,701 in selling costs. The basis of the property
was $9,357,449. For financial statement purposes, the Partnership recognized a
gain of $2,458,085 from the sale of this property, of which $1,097,043 was the
minority joint venture partner's share.
<PAGE>
(f) In September 1996, the Partnership sold the Hickory Creek Apartments in an
all cash sale for $14,300,000. From the proceeds of the sale, the Partnership
paid $349,622 in selling costs. The basis of the property was $10,453,558. For
financial statement purposes, the Partnership recognized a gain of $3,496,820
from the sale of this property.
(g) The Jonathan's Landing Apartments was owned by a joint venture consisting
of the Partnership and an affiliate. The Partnership and the affiliate held
participating percentages in the joint venture of 53.50% and 46.50%,
respectively. In November 1996, the joint venture sold the property in an all
cash sale for $21,300,000. From the proceeds of the sale, the joint venture
paid $796,475 in selling costs. The basis of the property was $18,354,120. For
financial statement purposes, the Partnership recognized a gain of $2,149,405
from the sale of this property, of which $999,473 was the minority joint
venture partner's share.
10. Affiliates' Participation in Joint Ventures:
(a) The Partnership classified the first mortgage loan investment
collateralized by the Whispering Hills Apartments as real estate held for sale.
This investment was owned by a joint venture consisting of the Partnership and
an affiliate. Profits and losses were allocated 75% to the Partnership and 25%
to the affiliate. The joint venture sold this property during 1997. See Note 9
of Notes to Financial Statements for additional information.
(b) The Sand Pebble Village - Phases I and II apartment complexes were owned by
a joint venture consisting of the Partnership and an affiliate. Profits and
losses were allocated 55.37% to the Partnership and 44.63% to the affiliate.
The joint venture sold these properties during 1996. See Note 9 of Notes to
Financial Statements for additional information.
(c) The Jonathan's Landing Apartments was owned by a joint venture consisting
of the Partnership and an affiliate. Profits and losses were allocated 53.5% to
the Partnership and 46.5% to the affiliate. The joint venture sold this
property during 1996. See Note 9 of Notes to Financial Statements for
additional information.
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 $4,243,964 and $22,619,077 were made to the joint venture
partners during 1997 and 1996, respectively. During 1997, the minority joint
venture partner of the Whispering Hills Apartments was allocated its share of
the gain on the sale of the property of $499,141. During 1996, the minority
joint venture partner of the Sand Pebble Village - Phase II and Jonathan's
Landing apartment complexes was allocated its share of the gains on the sales
of these properties of $1,097,043 and $999,473, respectively. In addition,
during 1996, the minority joint venture partner of the Sand Pebble Village -
Phase I Apartments was allocated its share of a recovery of a previously
established loss allowance of $928,725.
<PAGE>
11. Settlement of Litigation:
A settlement received final approval by the court in November 1996 in the class
action, Paul Williams and Beverly Kennedy et al. vs. Balcor Pension Investors,
et al. upon the terms described in the notice to class members in September
1996. The General Partner made a contribution of $115,368 to the Partnership,
of which the plaintiff's counsel received $11,537 pursuant to the settlement
agreement. In February 1997, the General Partner paid the remainder of the
settlement of $103,831 ($0.22 per Interest) to members of the class. Of the
settlement amount, $72,839 was paid to original investors who held their
Limited Partnership Interests at the date of the settlement and was recorded as
a distribution to Limited Partners in the Financial Statements. The remaining
portion of the settlement of $30,992 was paid to original investors who
previously sold their Interests in the Partnership. This amount was recorded as
an administrative expense in the Financial Statements. Similar contributions
and payments were made on the seven other partnerships included in the lawsuit
in addition to those payments described above. The Balcor Company paid an
additional $635,000 to the plaintiffs' class counsel and The Balcor Company
received approximately $946,000 from the eight partnerships as a reimbursement
of its legal expenses, of which $90,979 was the Partnership's share. The
settlement had no material impact on the Partnership.
12. Other Income:
(a) The Partnership received $554,250 during 1998 relating to the condemnation
of a portion of the land at the Butler Plaza Shopping Center during 1996. This
amount was recognized as other income for financial statement purposes.
(b) In 1997, the Partnership sold the U.S. West Direct Center Office Building.
Pursuant to the terms of the sale, $560,000 of the sales proceeds was held in
escrow to be used for the potential payment of costs relating to the removal of
soil contamination at the property. This amount was recorded as a reduction to
the sales price of the property for financial statement purposes at the date of
sale. No amounts were expended and the full amount of the escrow was released
to the Partnership in November 1998, along with accrued interest of $45,588.
The $560,000 escrow amount was recognized as other income for financial
statement purposes during 1998.
13. Extraordinary Item:
In connection with the sale of Sand Pebble Village Apartments - Phase II in
August 1996, the joint venture paid a prepayment penalty in the amount of
$145,775 which was recognized as debt extinguishment expense and classified as
an extraordinary item. The minority joint venture partner's share of the
extraordinary item is $65,074.
14. Contingency:
The Partnership is currently involved in a lawsuit, Dee vs. Walton Street
Capital Acquisition II, LLC, whereby the Partnership, the General Partner and
certain third parties have been named as defendants seeking damages relating to
tender offers to purchase interests in the Partnership and nine affiliated
<PAGE>
partnerships initiated by the third party defendants in 1996. The defendants
continue to vigorously contest this action. The action has been dismissed with
prejudice which dismissal was affirmed by the Illinois Appellate Court.
Plaintiffs have filed a further appeal to the Illinois Supreme Court. It is not
determinable at this time how the outcome of this action will impact the
remaining cash reserves of the Partnership. The Partnership believes that it
has meritorious defenses to contest the claims.
<PAGE>
[TEXT]
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0
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