SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
For the quarterly period ended September 30, 1999
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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EXCHANGE ACT OF 1934.
For the transition period from to
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Commission file number 0-15528
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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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Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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BALCOR PENSION INVESTORS - VII
(An Illinois Limited Partnership)
BALANCE SHEETS
September 30, 1999 and December 31, 1998
(Unaudited)
ASSETS
1999 1998
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Cash and cash equivalents $ 1,843,637 $ 1,865,288
Accrued interest receivable 7,955 10,100
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$ 1,851,592 $ 1,875,388
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 16,478 $ 26,759
Due to affiliates 56,266 50,964
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Total liabilities 72,744 77,723
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Commitments and contingencies
Limited Partners' capital (461,470
Interests issued and outstanding) 1,887,696 1,906,513
General Partner's deficit (108,848) (108,848)
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Total partners' capital 1,778,848 1,797,665
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$ 1,851,592 $ 1,875,388
============ ============
The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS - VII
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the nine months ended September 30, 1999 and 1998
(Unaudited)
1999 1998
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Income:
Interest on short-term investments $ 67,885 $ 143,415
Other income 29,234 1,114,250
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Total income 97,119 1,257,665
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Expenses:
Loss from operations of real estate
held for sale 7,541
Administrative 115,936 202,609
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Total expenses 115,936 210,150
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Net (loss) income $ (18,817) $ 1,047,515
============ ============
Net income allocated to General Partner None $ 45,276
============ ============
Net (loss) income allocated to Limited
Partners $ (18,817) $ 1,002,239
============ ============
Net (loss) income per Limited Partnership
Interest (461,470 issued and outstanding)
- Basic and Diluted $ (0.04) $ 2.17
============ ============
The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS - VII
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the quarters ended September 30, 1999 and 1998
(Unaudited)
1999 1998
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Income:
Interest on short-term investments $ 21,991 $ 80,126
Other income 29,234 560,000
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Total income 51,225 640,126
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Expenses:
Administrative 39,874 47,154
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Total expenses 39,874 47,154
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Net income $ 11,351 $ 592,972
============ ============
Net income allocated to General Partner None $ 39,620
============ ============
Net income allocated to Limited Partners $ 11,351 $ 553,352
============ ============
Net income per Limited Partnership
Interest (461,470 issued and outstanding)
- Basic and Diluted $ 0.03 $ 1.20
============ ============
The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS - VII
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the nine months ended September 30, 1999 and 1998
(Unaudited)
1999 1998
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Operating activities:
Net (loss) income $ (18,817) $ 1,047,515
Adjustments to reconcile net (loss) income
to net cash (used in) or provided by
operating activities:
Net change in:
Accounts and accrued interest
receivable 2,145 (590,941)
Accounts payable (10,281) (16,670)
Due to affiliates 5,302 25,455
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Net cash (used in) or provided by
operating activities (21,651) 465,359
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Net change in cash and cash equivalents (21,651) 465,359
Cash and cash equivalents at beginning
of year 1,865,288 1,983,142
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Cash and cash equivalents at end of period $ 1,843,637 $ 2,448,501
============ ============
The accompanying notes are an integral part of the financial statements.
BALCOR PENSION INVESTORS-VII
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policy:
In the opinion of management, all adjustments necessary for a fair presentation
have been made to the accompanying statements for the nine months and quarter
ended September 30, 1999, and all such adjustments are of a normal and
recurring nature.
2. Partnership Termination:
The partnership agreement provides for the dissolution of the Partnership upon
the occurrence of certain events. The Partnership sold its final real estate
investment in June 1997. The Partnership has retained a portion of the cash
from property sales to satisfy obligations of the Partnership as well as to
establish a reserve for contingencies. As previously reported, the Sandra Dee
case was dismissed by the Illinois Supreme Court in April 1999. The Madison
Partnership litigation was filed in May 1999. The second Sandra Dee case was
filed June 1, 1999 and served on August 16, 1999. See Note 5 of Notes to
Financial Statements for additional information regarding the Madison
Partnership/Dee litigation. Despite the existence of the Madison
Partnership/Dee litigation, the Partnership currently plans to dissolve in
December 1999 and distribute remaining cash reserves (including amounts in the
Early Investment Incentive Fund) to the partners in accordance with the
partnership agreement. In the event that a new contingency (such as a lawsuit)
arises during 1999, the Partnership may not be dissolved and may continue in
existence until such new contingency is resolved. The Partnership does not
consider the Madison Partnership/Dee case to be a matter that would preclude
the dissolution of the Partnership in 1999.
3. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates for the
nine months and quarter ended September 30, 1999 are:
Paid
-----------------------
Nine Months Quarter Payable
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Reimbursement of expenses to
the General Partner, at cost $ 22,184 $ 3,648 $ 56,266
4. Other Income:
The Sand Pebble II Apartments, which was owned by a joint venture consisting of
the Partnership and an affiliate, was sold during a prior year. During
September 1999, the Partnership received $29,234 in connection with the receipt
of its share of a utility deposit refund related to the property. This amount
has been recognized as other income for financial statement purposes.
5. Contingency:
In May 1999, a lawsuit was filed against the Partnership, Madison Partnership
Liquidity Investors XX, et al. vs. The Balcor Company, et al. whereby the
Partnership and certain affiliates have been named as defendants. The
plaintiffs are entities that initiated tender offers to purchase and, in fact,
purchased units in eleven affiliated partnerships. The complaint alleges breach
of fiduciary duties and breach of contract under the partnership agreement and
seeks the winding up of the affairs of the Partnership, the establishment of a
liquidating trust, the appointment of an independent trustee for the trust and
the distribution of a portion of the cash reserves to limited partners. On June
1, 1999, a second lawsuit was filed and was served on August 16, 1999, Sandra
Dee vs. The Balcor Company, et al. The Dee complaint is virtually identical to
the Madison Partnership complaint and on September 20, 1999 was consolidated
into the Madison Partnership case. The defendants intend to vigorously contest
these actions. The Partnership believes that it has meritorious defenses to
contest the claims. It is not determinable at this time how the outcome of
these actions will impact the remaining cash reserves of the Partnership.
BALCOR PENSION INVESTORS-VII
(An Illinois Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS
Balcor Pension Investors - VII (the "Partnership") is a limited partnership
formed in 1985 to invest principally in first mortgage loans. The Partnership
raised $115,367,500 from sales of Limited Partnership Interests and utilized
these proceeds to fund eight loans. Two of these loans were repaid, five
properties were acquired through foreclosure and subsequently sold and one of
the loans was sold. In addition, the Partnership purchased and subsequently
sold one property. As of September 30, 1999, the Partnership has no loans or
real estate in its portfolio.
Inasmuch as the management's discussion and analysis below relates primarily to
the time period since the end of the last fiscal year, investors are encouraged
to review the financial statements and the management's discussion and analysis
contained in the annual report for 1998 for a more complete understanding of
the Partnership's financial position.
Operations
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Summary of Operations
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The operations of the Partnership in 1999 consisted primarily of
administrative expenses which were partially offset by interest income earned
on short-term investments. This was the primary reason the Partnership
recognized a net loss during the nine months ended September 30, 1999. During
the quarter ended September 30, 1999, the Partnership recognized other income
in connection with the receipt of its share of a utility deposit refund related
to the Sand Pebble II Apartments. This is the primary reason the Partnership
recognized net income during the quarter ended September 30, 1999. During the
second quarter of 1998, the Partnership recognized income related to the
receipt of proceeds from the Butler Plaza Shopping Center land condemnation
proceedings and during the quarter ended September 30, 1998, the Partnership
recognized 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.
Primarily as a result of these events, the Partnership recognized net income
during the nine months and quarter ended September 30, 1998. Further discussion
of the Partnership's operations is summarized below.
1999 Compared to 1998
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Unless otherwise noted, discussions of fluctuations between 1999 and 1998 refer
to both the nine months and quarters ended September 30, 1999 and 1998.
Primarily as a result of higher average cash balances in 1998 due to the
investment of the escrow funds received in connection with the sale of the U.S.
West Direct Center Office Building and the Butler Plaza Shopping Center land
condemnation proceeds prior to the distribution to Limited Partners in December
1998, interest income on short-term investments decreased during 1999 as
compared to 1998. In addition, interest rates were lower in 1999 as compared to
1998.
The Sand Pebble II Apartments, which was owned by a joint venture consisting of
the Partnership and an affiliate, was sold during a prior year. During
September 1999, the Partnership received $29,234 in connection with the receipt
of its share of a utility deposit refund related to the property. During the
second quarter of 1998, the Partnership received $554,250 relating to the 1996
condemnation of a portion of the land at the Butler Plaza Shopping Center.
During the third quarter of 1998, the Partnership received $560,000 in
connection with the release of an escrow related to the sale of the U.S. West
Direct Center Office Building. These amounts were recognized as other income
for financial statement purposes.
During the first quarter of 1998, the Partnership paid additional expenditures
related to certain of the properties sold in 1997 and recognized a loss from
operations of real estate held for sale.
Primarily due to a decrease in accounting and portfolio management fees,
administrative expenses decreased in 1999 as compared to 1998.
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership decreased by approximately $22,000 as of
September 30, 1999 when compared to December 31, 1998 due to cash used in
operating activities for the payment of administrative expenses, which was
partially offset by interest income earned on short-term investments and the
receipt of its share of a utility deposit refund related to the Sand Pebble II
Apartments.
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 property sales to
satisfy obligations of the Partnership as well as to establish a reserve for
contingencies. As previously reported, the Sandra Dee case was dismissed by the
Illinois Supreme Court in April 1999. The Madison Partnership and the new
Sandra Dee litigation, described in Part II, Item 1, of this report, were filed
in May 1999 and June 1999, respectively. Despite the existence of the Madison
Partnership/Dee litigation, the Partnership currently plans to dissolve in
December 1999 and distribute remaining cash reserves (including amounts in the
Early Investment Incentive Fund) to the partners in accordance with the
partnership agreement. In the event that a new contingency (such as a lawsuit)
arises during 1999, the Partnership may not be dissolved and may continue in
existence until such new contingency is resolved. The Partnership does not
consider the Madison Partnership/Dee case to be a matter that would preclude
the dissolution of the Partnership in 1999. As a result of the pending
dissolution of the Partnership, the general partner has suspended transfer of
limited partnership interests in the Partnership. Certain transfers which are
not for value (such as death, divorce, change of custodian or other estate
planning) will continue to be permitted. In the event that dissolution of the
Partnership does not occur during 1999, the Partnership will allow transfers of
limited partnership interests to occur commencing in January 2000.
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. 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.
In 1997, the Partnership discontinued the repurchase of Interests from Limited
Partners. As of September 30, 1999, there was cash of $1,592,852 in the Early
Investment Incentive Fund.
The Partnership sold all of its remaining real property investments and
mortgage loans and distributed a majority of the proceeds from these sales to
Limited Partners in 1997. Since the Partnership no longer has any operating
assets, the number of computer systems and programs necessary to operate the
Partnership has been significantly reduced. The Partnership relies on third
party vendors to perform most of its functions and has implemented a plan to
determine the Year 2000 compliance status of these key vendors. The Partnership
is within its timeline for having these plans completed prior to the year 2000.
The Partnership's plan to determine the Year 2000 compliance status of its key
vendors has involved soliciting information from these vendors through the use
of surveys, follow-up discussions and review of data where needed. The
Partnership has received the surveys from each of these vendors. While the
Partnership cannot guarantee Year 2000 compliance by its key vendors, and is
relying on statements from these vendors without independent verification,
these surveys, testing of systems, where applicable and discussions with the
key vendors performing services for the Partnership indicate that the key
vendors are substantially Year 2000 compliant as of September 30, 1999. The
Partnership will continue to monitor the Year 2000 compliance of its key
vendors during the fourth quarter of 1999. In addition, the Partnership has
developed a contingency plan in the event of non-compliance by these key
vendors in the Year 2000. 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.
BALCOR PENSION INVESTORS-VII
(An Illinois Limited Partnership)
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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Madison Partnership Liquidity Investors XX, et al. vs. The Balcor Company,
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et al.
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On May 7, 1999, a proposed class action complaint was filed, and on May 13,
1999 was served on the defendants, Madison Partnership Liquidity Investors XX,
et al. vs. The Balcor Company, et al. (Circuit Court, Chancery Division, Cook
County, Illinois, Docket No. 99CH 06972). The general partner of the
Partnership, the general partners of twenty-one additional limited partnerships
which were sponsored by The Balcor Company, The Balcor Company and one
individual are named as defendants in this action. The Partnership and the
twenty-one other limited partnerships are referred to herein as the "Affiliated
Partnerships". Plaintiffs are entities that initiated tender offers to purchase
units and, in fact, purchased units in eleven of the Affiliated Partnerships.
The complaint alleges breach of fiduciary duties and breach of contract under
the partnership agreements for each of the Affiliated Partnerships. The
complaint seeks the winding up of the affairs of the Affiliated Partnerships,
the establishment of a liquidating trust for each of the Affiliated
Partnerships until a resolution of all contingencies occurs, the appointment of
an independent trustee for each such liquidating trust and the distribution of
a portion of the cash reserves to limited partners. The complaint also seeks
compensatory damages, punitive and exemplary damages, and costs and expenses in
pursuing the litigation. On July 14, 1999, the defendants filed a Motion to
Dismiss the complaint. A hearing date on the motion has not yet been set. On
September 20, 1999 the Sandra Dee case described below was consolidated with
this case. Future reports to investors will report only the consolidated case.
The defendants intend to vigorously contest this action. No class has been
certified as of this date. The Partnership believes that 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
Partnership.
Sandra Dee vs. The Balcor Company, et al.
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On June 1, 1999, a proposed class action complaint was filed, and on August 16,
1999 was served on the defendants, Sandra Dee vs. The Balcor Company, et al.
(Circuit Court, Chancery Division, Cook County, Illinois, Docket No. 99CH
08123). The general partner of the Partnership, the general partners of
twenty-one additional limited partnerships which were sponsored by The Balcor
Company, The Balcor Company and one individual are named as defendants in this
action. The Partnership and the twenty-one other limited partnerships are
referred to herein as the "Affiliated Partnerships". This complaint is
identical in all material respects to the Madison Partnership Liquidity
Investors XX, et al. vs. The Balcor Company et al. complaint filed in May 1999.
The complaint alleges breach of fiduciary duties and breach of contract under
the partnership agreements for each of the Affiliated Partnerships. The
complaint seeks the winding up of the affairs of the Affiliated Partnerships,
the establishment of a liquidating trust for each of the Affiliated
Partnerships until a resolution of all contingencies occurs, the appointment of
an independent trustee for each such liquidating trust and the distribution of
a portion of the cash reserves to limited partners. The complaint also seeks
compensatory damages, punitive and exemplary damages, and costs and expenses in
pursuing the litigation. The defendants filed on September 15, 1999 a motion to
consolidate this case with the Madison Partnership case. On September 20, 1999,
the motion was granted and this case was consolidated with the Madison
Partnership case. Future reports to investors will report only the consolidated
case. On September 15, 1999, the defendants also filed a Motion to Dismiss the
complaint.
The defendants intend to vigorously contest this action. No class has been
certified as of this date. The defendants believe that they have 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
Partnership.
Item 6. Exhibits and Reports on Form 8-K
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(a) Exhibits:
(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.
(27) Financial Data Schedule of the Registrant for the nine months ended
September 30, 1999 is attached hereto.
(b) Reports on Form 8-K: No Reports on Form 8-K were filed during the quarter
ended September 30, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BALCOR PENSION INVESTORS-VII
By: /s/Thomas E. Meador
-----------------------------
Thomas E. Meador
President and Chief Executive Officer (Principal
Executive Officer) of Balcor Mortgage
Advisors-VII, the General Partner
By: /s/Jayne A. Kosik
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Jayne A. Kosik
Senior Managing Director and Chief Financial
Officer (Principal Accounting and Financial
Officer) of Balcor Mortgage Advisors-VII, the
General Partner
Date: November 4, 1999
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