UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant X
Filed by a Party other than the Registrant __
Check the appropriate box:
__Preliminary Proxy Statement
__Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
X Definitive Proxy Statement
__Definitive Additional Materials
__Soliciting Material Pursuant to e240.14a-11(c) or e240.14a-12
Balcor/Colonial Storage Income Fund - 86
(Name of Registrant as Specified In Its Charter)
Same
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of filing fee (Check the appropriate box):
__$125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
__$500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
X Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1)Title of each class of securities to which transaction applies:
Limited Partnership Interests ("Units")
2)Aggregate number of securities to which transaction applies: 256,904 Units
3)Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined): $261.19.(1)
4)Proposed maximum aggregate value of transaction: $67,100,000
5)Fee paid: $13,420(2)
<PAGE>
1 Determined by dividing the aggregate consideration of $67,100,000 to be
received by the Registrant upon disposition of all of its assets, by
the number of Units set forth in 2 above.
2 Pursuant to Rule 0-11c(2), the filing fee was calculated based on
1/50th of 1% of $67,100,000.
X Fee paid previously with preliminary materials.
X Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1)Amount Previously Paid: $13,420
2)Form, Schedule or Registration Statement No.: SCHEDULE 14A
3)Filing Party: Balcor/Colonial Storage Income Fund - 86
4)Date Filed: March 20, 1996
<PAGE>
BALCOR/COLONIAL STORAGE INCOME FUND - 86
P.O. BOX 7190
Deerfield, Illinois 60015-7190
April 29, 1996
Dear Investor:
The General Partners of Balcor/Colonial Storage Income Fund-86 (the
"Partnership") are soliciting your vote on a proposed sale of all 24
mini-warehouse facilities (the "Facilities") owned by the Partnership to
Storage Trust Properties, L.P. ("STP") for $67.1 million. The General Partners
of the Partnership are Balcor Storage Partners-86 and Colonial Storage 86, Inc.
The sale is currently scheduled to close on May 15, 1996, assuming all
conditions of the Purchase Agreement between STP and the Partnership are
satisfied. Therefore, your prompt response to this solicitation will be
appreciated.
The sale of the Facilities to STP is conditioned on, among other things, the
approval of the holders of a majority of the outstanding Partnership interests
("Units"). Upon the closing of the sale of the Facilities to STP, or as soon
thereafter as is practicable, the General Partners intend to liquidate the
Partnership and distribute the net proceeds from the sale of the Facilities and
any other funds of the Partnership available for distribution in the manner set
forth in the Amended and Restated Agreement and Certificate of Limited
Partnership (the "Partnership Agreement"). The distributions in liquidation
are estimated to be approximately $254 to $257 per Unit. An initial
distribution of at least $254 per Unit is expected to be made no later than 30
days after the sale to STP is consummated. The final determination of the
distributions in liquidation will depend on certain amounts that may vary up
through, and until the date of closing, including (i) net proceeds from the
sale, (ii) closing and solicitation costs and (iii) net cash receipts from
operations prior to closing.
The General Partners recommend that Limited Partners approve the proposed
sale of the Facilities for the following reasons:
The estimated liquidating distribution from a sale of the Facilities to STP
significantly exceeds the amount offered in recent third-party tender offers.
On January 10, 1996, a tender offer was commenced to purchase 4.9% of the Units
at a price of $160 per Unit, on January 23, 1996, a tender offer was commenced
to purchase 25% of the outstanding Units at $200 per Unit and on April 15,
1996, a tender offer was commenced to purchase 32.5% of the outstanding Units
at $240 per Unit. These offers were 37%, 21%, and 6% respectively, lower than
the low end of the range of estimated distributions per Unit if the sale of the
Facilities to STP is consummated.
The General Partners believe the sale price of the Facilities to STP is
favorable to the Partnership. On February 12, 1996, the Partnership received
an unsolicited offer from STP to purchase the Facilities. In response to this
offer, the General Partners solicited competing offers for the Facilities from
other prospective purchasers. After evaluating these offers, the General
Partners believe that the final proposal offered by STP is advantageous to the
Partnership.
<PAGE>
A sale of the Facilities to STP is consistent with the Partnership's stated
principal objectives of: (i) preserving Limited Partners' capital; (ii)
providing quarterly cash distributions and (iii) obtaining long term
appreciation in the value of its properties. If the sale to STP is consummated
and a liquidating distribution of $254 per Unit is paid, Limited Partners will
have realized approximately a 7.2% average annual rate of return on their
investment over the life of the Partnership.
Based on the considerations described above, which are discussed in greater
detail in the enclosed Consent Solicitation of Limited Partners, the General
Partners believe that the proposed sale of the Facilities is fair to the
Limited Partners. The General Partners therefore recommend that you vote FOR
the proposed sale.
The General Partners urge you to review the enclosed Consent Solicitation
carefully and indicate your vote by completing the enclosed consent form and
returning it in the business-reply envelope as soon as possible, but in no
event later than May 10, 1996. The affirmative vote of holders of a majority
of the outstanding Units must be received in order to consummate the proposed
sale of the Facilities.
Should you have any questions regarding the proposed sale, please contact
MAVRICC Management Systems, Inc. at 1-800-422-5267, which is assisting the
General Partners with the approval process. Your prompt response will be
appreciated.
Very truly yours, Very truly yours
/s/James R. Pruett /s/Thomas E. Meador
James R. Pruett, President Thomas E. Meador, Chairman
Colonial Storage 86, Inc. Balcor Storage Partners - 86
<PAGE>
TABLE OF CONTENTS
INTRODUCTION
VOTING RIGHTS
Record Date
Required Vote/Dissenters' Rights
Voting Instructions
Consummation of Transaction
Questions and Assistance
BACKGROUND
The Partnership
The General Partners
Background of the Proposal
PLAN OF SALE AND LIQUIDATION
Description of Purchaser
Description of Facilities
Summary of Purchase Agreement
Recommendation of the General Partners
Certain Considerations
Liquidation of Partnership
Distributions in Liquidation
Regulatory Compliance
Accounting Treatment
Certain Federal Income Tax Consequences
SOLICITATION PROCEDURES AND EXPENSES
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
LEGAL PROCEEDINGS
ADDITIONAL INFORMATION
FINANCIAL INFORMATION
Selected Financial Data
Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
INDEX TO FINANCIAL STATEMENTS
APPENDIX A
Excerpt from Estimate of current value of a Unit by the Valuation Counselors
Group and Darby & Associates, Joint Venture, dated March 20, 1996
<PAGE>
BALCOR/COLONIAL STORAGE INCOME FUND - 86
CONSENT SOLICITATION
OF LIMITED PARTNERS
INTRODUCTION
This Consent Solicitation is being furnished to the limited partners (the
"Limited Partners") of Balcor/Colonial Storage Income Fund - 86, an Illinois
limited partnership (the "Partnership"), in connection with the solicitation of
the Limited Partners' consent to the sale of substantially all of the assets of
the Partnership, consisting of 24 mini-warehouse facilities (the "Facilities").
The sale of the Facilities is intended to be made pursuant to the terms of a
Purchase Agreement (the "Purchase Agreement") dated as of March 5, 1996, by and
between Storage Trust Properties, L.P., a Delaware limited partnership ("STP")
and the Partnership. STP is not affiliated with the Partnership or either of
the Partnership's general partners. The sale is currently scheduled to close on
May 15, 1996, assuming all conditions of the Purchase Agreement are satisfied.
The Purchase Agreement may be terminated by either the Partnership or STP
in the event that the holders of a majority of the outstanding limited
partnership interests ("Units") have not consented to the proposed transaction
by June 15, 1996; provided that either party may extend such date until not
later than July 15, 1996. See "Plan of Sale and Liquidation - Summary of
Purchase Agreement."
Upon the closing of the sale of the Facilities, or as soon thereafter as
is practicable, Balcor Storage Partners - 86, an Illinois general partnership
("Balcor") and Colonial Storage 86, Inc., a Texas corporation ("Colonial"), the
general partners of the Partnership (the "General Partners"), intend to
liquidate the Partnership and distribute the net proceeds of the sale of the
Facilities and any other funds of the Partnership available for distribution in
the manner set forth in the Amended and Restated Agreement and Certificate of
Limited Partnership (the "Partnership Agreement"). See "Plan of Sale and
Liquidation - Liquidation of Partnership."
The distributions in liquidation are estimated to be $254 to $257 per
Unit. An initial distribution of at least $254 is expected to be made no later
than 30 days after the sale to STP is consummated. The final determination of
the distribution in liquidation will depend on certain amounts that may vary up
through the date of closing, including (i) net proceeds from the sale, (ii)
closing and solicitation costs and (iii) net cash receipts from operations
prior to closing. See "Plan of Sale and Liquidation -- Distributions in
Liquidation." Upon the completion of the liquidation, the operations of the
Partnership will cease.
<PAGE>
The General Partners have approved the proposed sale of the Facilities and
recommend approval of such transaction by the Limited Partners. In evaluating
the fairness of the sale, the General Partners have considered, among other
things, other offers received from third parties for the Facilities, the
recent trading prices for Units in secondary market trades and recent
unsolicited offers to purchase some of the outstanding limited partnership
interests in the Partnership. Although the General Partners have not obtained
an independent fairness opinion in connection with the transaction, on March
20, 1996, the Valuation Counselors Group and Darby & Associates, Joint Venture
estimated the value of a Unit based on a projection of distributions during the
next five years. See "Plan of Sale and Liquidation - Certain Considerations."
This Consent Solicitation and the accompanying form of consent are first
being mailed to the Limited Partners on or about April 29, 1996.
WE URGE YOU TO VOTE BY MARKING THE ENCLOSED CONSENT FORM "FOR" THE SALE
OF SUBSTANTIALLY ALL THE ASSETS OF THE PARTNERSHIP, AND SIGNING AND MAILING
THE CONSENT FORM TO MAVRICC MANAGEMENT SYSTEMS, INC. IN THE ENCLOSED
RETURN ENVELOPE BY MAY 10, 1996.
<PAGE>
VOTING RIGHTS
Record Date
The General Partners have designated April 1, 1996 as the record date (the
"Record Date") for the determination of Limited Partners entitled to vote on
the sale of the Facilities. As of the Record Date, there were 256,904 Units
outstanding, held by approximately 8,158 Limited Partners.
Required Vote/Dissenters' Rights
Pursuant to Section 15.3 of the Partnership Agreement, the sale of all or
substantially all of the real property assets of the Partnership in a single
transaction requires the consent of holders of a majority of the outstanding
Units. Each Unit is entitled to one vote on the proposal and the affirmative
vote of the holders of a majority of all outstanding Units is required to
approve the sale. Abstentions and broker non-votes, if any, will not be
counted as affirmative votes for such proposal.
Unit holders are not afforded any dissenters' rights under the Revised
Uniform Limited Partnership Act of the State of Illinois or under the
Partnership Agreement.
Voting Instructions
Please complete the enclosed form of consent, date and sign it as
indicated and return it to MAVRICC Management Systems, Inc. ("MAVRICC") in the
enclosed return envelope. Consents will be counted on or about May 10, 1996
which date may be extended at the discretion of the General Partners. The
solicitation of consents will cease at such time (but no earlier than May 10,
1996) as MAVRICC receives the affirmative vote of the holders of a majority of
outstanding Units. If no direction is indicated on the consent form, signed
consents will be counted as a vote "FOR" the sale of substantially all of the
assets of the Partnership.
You may revoke your consent at any time prior to the Partnership receiving
the affirmative vote of the holders of a majority of the outstanding Units, by
mailing a properly executed consent form bearing a later date or by mailing a
signed, written notice of revocation to the attention of MAVRICC. Revocation
of a consent will be effective upon receipt by MAVRICC of either (i) an
instrument revoking the consent or (ii) a duly executed consent bearing a later
date. Consent forms and this Consent Solicitation were first mailed to Limited
Partners on April 29, 1996.
Consummation of Transaction
Upon the receipt of signed consent forms from Limited Partners holding a
majority of the outstanding Units which approve the transaction and
satisfaction of certain other conditions set forth in the Purchase Agreement,
the General Partners will consummate the sale of substantially all of the
assets of the Partnership as contemplated by the Purchase Agreement and
commence the liquidation of the Partnership as soon as practicable.
<PAGE>
Questions and Assistance
If you have not received a consent form or you have questions or need
assistance in voting, please call MAVRICC (1-800-422-5267) which is assisting
the General Partners with the consent solicitation process.
BACKGROUND
The Partnership
The Partnership was formed on May 20, 1986, pursuant to the Revised
Uniform Limited Partnership Act of the State of Illinois for the purpose of
acquiring, developing, owning, operating, leasing and holding for capital
appreciation and current income, mini-warehouse facilities offering storage
space for personal and business use and office/warehouses offering a
combination of office and commercial warehouse space. The Partnership acquired
four mini-warehouse properties in 1986 and seven mini-warehouse properties in
1987 from affiliates of the General Partners. In addition, the Partnership
acquired from non-affiliated entities four mini-warehouse properties in 1987
and nine mini-warehouse properties in 1988. The Facilities proposed to be sold
to STP are the only properties currently owned by the Partnership. For
additional information concerning the Facilities, see "Plan of Sale and
Liquidation - Description of Facilities." The Partnership currently has 5
full-time employees and 56 part-time employees engaged in its operations.
The General Partners
The General Partners of the Partnership are Balcor and Colonial. The
general partners of Balcor are The Balcor Company, a Delaware corporation, and
Balcor Storage Partners, Inc., an Illinois corporation. The General Partners
have served as general partners of the Partnership since its formation in May
1986. The officers, directors and employees of Balcor and Colonial and their
affiliates perform certain services for the Partnership. The Partnership's
Facilities are managed by Colonial Storage Management 86, Inc. an affiliate of
Colonial.
Background of the Proposal
In October 1986, the Partnership commenced an offering to the public in
which 256,904 Units were sold. At the time of the offering, the Partnership
stated in the offering prospectus (the "Prospectus") that its principal
objectives were (i) to preserve and protect the Limited Partners' capital; (ii)
to provide Limited Partners with regular quarterly cash distributions from net
cash receipts and (iii) to obtain long-term appreciation in the value of its
properties. The Prospectus also advised potential investors that the
Partnership intended to hold the various real properties it acquired until such
time as a sale or other disposition appeared to be advantageous.
<PAGE>
Recent interest expressed by institutional investors in purchasing the
assets of the Partnership or outstanding Units suggested that conditions were
favorable for the disposition of the Facilities. In January 1996, an
unsolicited tender offer was commenced by Everest Storage Investors, LLC,
("Everest") to purchase 4.90% of the outstanding Units at a price of $160 per
Unit. Although the General Partners recommended that the Limited Partners not
accept this offer primarily on the basis that the offering price was
inadequate, Everest has advised the General Partners that approximately 4.15%
of the outstanding Units were tendered and purchased. Shortly thereafter,
Public Storage, Inc. ("PSI") offered to purchase up to 25% of the outstanding
Units at a price of $200 per Unit. The General Partners expressed no opinion
and remained neutral with respect to this latter tender offer. The PSI offer
expired on March 12, 1996. On April 2, 1996, PSI reported that approximately
3.77% of the outstanding Units had been tendered. PSI also indicated on that
date that it had entered into a privately negotiated agreement to purchase
10,999 additional Units.
On April 15, 1996, PSI commenced a second unsolicited tender offer to
purchase up to 32.5% of the outstanding Units at $240 per Unit. The PSI offer
expires on May 14, 1996 unless extended. The General Partners have expressed
no opinion and remain neutral with respect to this PSI tender offer. PSI also
reported on April 15, 1996 that it currently owns approximately 3.60% of the
outstanding Units, that the additional 10,999 Units are to be purchased from
Everest and assuming the purchase of such additional Units, it will own
approximately 7.80% of the outstanding Units.
On February 12, 1996, the Partnership received an unsolicited proposal
from STP to purchase the Facilities at a price of $61 million. Sensing strong
interest from institutional purchasers of mini-warehouse facilities, the
General Partners decided to pursue a transaction in which all of the
Partnership's properties would be sold. Accordingly, on February 19, 1996, the
Partnership solicited offers from six different prospective purchasers involved
in the mini-warehouse business. In order to timely provide additional
information to Limited Partners evaluating the pending tender offer from PSI,
the Partnership emphasized that bids would be considered through and until 5:00
p.m. on February 29, 1996.
The top two bids received on or prior to February 29, 1996 (including an
increased offer from STP), were $65.2 million and $65.4 million. The
Partnership contacted the two highest bidders and accepted a final proposal
from each bidder on Friday, March 1, 1996. Based on the General Partners'
evaluation of these proposals, the Partnership agreed to negotiate exclusively
with STP. Formal contract negotiations with STP commenced on March 4, 1996,
and final terms of the transaction were reached on March 6, 1996 at which time
STP agreed to pay $67.1 million for the Facilities.
<PAGE>
PLAN OF SALE AND LIQUIDATION
Description of Purchaser
The proposed purchaser of the Facilities, STP, is a Delaware limited
partnership, whose sole general partner is Storage Trust Realty, a Maryland
real estate investment trust. Storage Trust Realty operates mini-warehouse
facilities in 16 states. STP is not affiliated with either General Partner or
the Partnership.
The principal executive offices of STP are located at 2407 Rangeline,
Columbia, Missouri 65205.
STP has advised the Partnership that it anticipates that it will fund its
acquisition through its existing lending institutions and the issuance of its
securities, as well as from a $3.3 million escrow deposit funded by STP
previously. STP at present has a $100 million unsecured line of credit with
The First National Bank of Boston, of which approximately $52 million remains
available as of April 24, 1996. This line of credit expires in January 1998
with a one-year extension at STP's option and bears interest at a floating rate
of LIBOR plus 175 basis points. STP also has obtained additional borrowing
capacity from The First National Bank of Boston in the amount of up to $17
million. Therefore, STP has funds available in excess of the proposed purchase
price of $67.1 million. In addition, Storage Trust Realty has an effective
registration statement for $75 million and expects to make an offering of its
equity securities in the near term, the proceeds of which are expected to be
available to fund this acquisition. STP's commitment to purchase the
Partnership Properties is not contingent on financing.
Description of Facilities
The Partnership currently owns 24 mini-warehouse facilities located
throughout the United States. The following table sets forth the name and
location of each of the 24 Facilities proposed to be sold to STP:
<PAGE>
Net
Rentable
Land Area Number of
Area (Square Rentable
Location (Acres Feet) Spaces
- ------------------------------------- ------- ----------- -------------
201 Cobb Parkway, Marietta, Georgia 3.1 47,980 431
6390 Winchester Road, Memphis,
Tennessee 2.3 39,444 360
5675 Summer Avenue, Memphis,
Tennessee (1) 2.4 46,010 377
2064 Briarcliff, Atlanta, Georgia
(2) 2.8 45,700 174
4333 Jackson Drive, Garland, Texas 3.1 72,572 612
321 East Buckingham Road, Garland,
Texas 2.1 40,701 299
3218 South Garnett Road, Tulsa,
Oklahoma 3.7 57,540 464
5708 Fort Caroline
Road, Jacksonville, Florida 3.7 67,925 768
3401 Avenue K, Plano, Texas (3) 4.7 87,654 897
4301 and 4324 Poplar Level
Road, Louisville, Kentucky (4) 4.1 81,982 798
2719 Morse Road, Columbus, Ohio 4.3 62,190 518
5036 Cleveland Avenue, Fort Meyers,
Florida 5 65,086 583
3281 Western Branch
Boulevard, Chesapeake, Virginia 5.5 75,201 747
2300 Kangaroo Drive, Durham, North
Carolina 4 47,502 657
28 W. 650 Roosevelt Road, Winfield,
Illinois (5) 5.6 48,145 550
1131 Semoran Boulevard, Casselberry,
Florida 3.9 67,159 641
36 Pine Knoll Road, Greenville,
South Carolina (6) 4.2 50,325 446
750 East Third Street, Lexington,
Kentucky 3.3 55,700 450
1900 U.S. Highway 19 South, Tarpon
Springs, Florida 5.4 80,732 748
7415 West Dean Road, Milwaukee,
Wisconsin (7) 11.7 205,190 1,107
W229 N590 Foster Court and,
N5 W22966 Bluemound Road, Waukesha,
Wisconsin (8) 3 49,632 219
<PAGE>
3120 Breckenridge Lane, Louisville,
Kentucky 2.1 34,490 329
2275 South Semoran
Boulevard, Orlando, Florida 1.9 30,050 345
11195 Alpharetta Highway, Roswell,
Georgia 9.1 113,310 680
__________________
(1) The property consists of 374 units of mini-warehouse space and 3 units of
office/warehouse space.
(2) The property consist of 156 units of mini-warehouse space and 18 units of
office/warehouse space.
(3) The property consists of 855 units of mini-warehouse space and 42 paved
parking spaces.
(4) These mini-warehouse facilities consist of two separate addresses, 4301
Poplar Level Road and 4324 Poplar Level Road, with separate title and survey
for each address. These facilities are described as two distinct properties
in the Purchase Agreement and, accordingly, the total number of Facilities
reflected in the Purchase Agreement is 25 instead of 24.
(5) The property consists of 455 units of mini-warehouse space and 95 parking
spaces.
(6) The property consists of 433 units of mini-warehouse space and 13 units of
office/warehouse space.
(7) The property consists of 694 units of mini-warehouse space and 413 paved
parking spaces.
(8) The property consists of 209 units of mini-warehouse space and 10 units of
office/warehouse space.
<PAGE>
The Partnership, by virtue of its ownership of the Facilities, is subject
to federal and state laws and regulations covering various environmental
issues. Management of the Partnership utilizes the services of environmental
consultants to assess a wide range of environmental issues and to conduct tests
for contaminations as appropriate. The General Partners are not aware of any
potential liability due to environmental issues or conditions that would be
material to the Partnership. But see "Summary of Purchase Agreement -
Environmental" for a discussion of testing for Environmental Material Defects
(as defined in the Purchase Agreement).
Summary of Purchase Agreement
The following is a summary of certain of the terms and conditions of the
Purchase Agreement between the Partnership and STP. A copy of the entire
Purchase Agreement may be obtained from the General Partners without charge.
Sale of Facilities. Pursuant to the Purchase Agreement, STP has agreed to
purchase the Facilities from the Partnership for an aggregate purchase price of
$67.1 million (the "Purchase Price"). STP will pay for all closing costs
(other than professional fees and commissions) including, but not limited to,
costs of documentation, local and state transfer stamps, escrow, sales tax,
personal property tax, title commitments, title policies, environmental
assessments and updated surveys in connection with the sale of the Facilities.
STP has deposited $3.35 million as earnest money to be held in escrow until
consummation of the sale. The transaction is currently scheduled to close on
May 15, 1996, unless terminated earlier or extended, as discussed below.
Termination. The Purchase Agreement may be terminated at any time prior
to the closing (i) by mutual written consent of the Partnership and STP; (ii)
by STP, if the Partnership shall have failed to (a) mail this Consent
Solicitation as soon as practicable following an indication from the Securities
and Exchange Commission (the "Commission") that it has no further comments
thereon, (b) include in this Consent Solicitation the General Partners'
recommendation of the Purchase Agreement or the underlying transactions
contemplated thereby, or (c) use its commercially reasonable and good faith
efforts to seek to obtain the requisite consent of the Limited Partners; (iii)
by STP, if the General Partners shall have recommended that the Limited
Partners accept or approve a proposal or offer with respect to a merger,
acquisition, tender offer, exchange offer, consolidation or purchase of the
Facilities or similar offer (an "Acquisition Proposal") by a person other than
STP; (iv) by STP, if the General Partners shall have withdrawn or modified
their approval of the Purchase Agreement or the underlying transactions; (v) by
the Partnership, if the General Partners recommend to the Limited Partners
acceptance of an Acquisition Proposal by a person other than STP after a
determination that such action is necessary for the General Partners to comply
with their fiduciary duties; or (vi) by the Partnership or STP, if the consent
of holders of a majority of the outstanding Units is not obtained on or before
June 15, 1996; provided that either the Partnership or STP may extend such date
to not later than July 15, 1996. Unless the Purchase Agreement is so
terminated, closing is to occur on the later of (a) May 15, 1996 or (b) two (2)
business days after the consent of holders of a majority of the outstanding
Units is obtained.
<PAGE>
Termination Amount. If the Purchase Agreement terminates (A) due to any
of clauses "(ii)" through "(v)" above, and within 150 days of such termination
the Partnership consummates, or enters into a definitive agreement with respect
to, a transaction which was the subject of an Acquisition Proposal or (B) due
to clause "(vi)" above and at the time of such termination an Acquisition
Proposal was outstanding and within 150 days of such termination Seller
consummates, or enters into a definitive agreement with respect to, a
transaction pursuant to any Acquisition Proposal, then the Partnership has
agreed to pay STP, only upon the consummation of such transaction, $1.342
million plus half of certain of STP's out-of-pocket costs and expenses related
to entering into the Purchase Agreement (the "Termination Amount") estimated at
approximately $70,000 and has agreed not to enter into any agreement relating
to an Acquisition Proposal with a person other than STP unless such person
agrees to pay any Termination Amount due STP. For purposes of payment of the
Termination Amount, an Acquisition Proposal that is in the form of a tender
offer shall be deemed to be consummated only if such tender offer is accepted
by 40% or more of the outstanding Units. The aggregate Termination Amount
payable to STP may be reduced based on certain limitations set forth in the
Purchase Agreement regarding STP's ability to receive such a fee in light of
its status as a real estate investment trust.
Environmental. In the event that STP notifies the Partnership of
Environmental Material Defects (as defined in the Purchase Agreement) for which
the estimated cost of remediation exceeds $125,000, but is less than or equal
to $250,000, then STP shall receive at the closing a credit against the
Purchase Price equal to the difference between the estimated cost of
remediation and $125,000. In addition, if the cost of remedying the
Environmental Material Defects exceeds $375,000, but is less than or equal to
$500,000, then STP shall receive at the closing an additional credit against
the Purchase Price equal to the difference between the estimated cost of
remediation and $375,000. In the event that the cost of remedying the
Environmental Material Defects exceeds $500,000, then the Partnership has the
right to either terminate the Purchase Agreement or credit against the Purchase
Price the difference between the estimated cost of remediation and $250,000.
In the event the Partnership elects to so terminate the Purchase Agreement, STP
may nonetheless negate such termination by agreeing to accept a $250,000 credit
to the Purchase Price and purchase the Facilities subject to all Environmental
Material Defects.
On March 25, 1996, STP delivered a letter to the Partnership regarding the
environmental condition of the Facilities. In the letter, STP established that
additional testing would be required with respect to several sites to determine
whether an Environmental Material Defect exists. As a result, the contract
requires that the Partnership escrow $250,000 at closing pending the results of
such tests. If STP is able to establish an Environmental Material Defect with
respect to the sites for which additional testing is being done, within ninety
(90) days after the closing, STP would be entitled to such portion of the
escrowed funds as STP can demonstrate is required to cure such Environmental
Material Defect(s). All escrowed funds which have not been allocated to the
cost of curing an Environmental Material Defect before the end of such ninety
(90) day period would be returned to the Partnership. In no event will the
Partnership be responsible for more than $250,000 towards the cure of any
Environmental Material Defects revealed by such additional testing.
<PAGE>
Representations. The Partnership has represented and warranted to STP
that (i) except as disclosed in the Purchase Agreement, the Partnership has no
knowledge of any pending or threatened litigation, claim or proceeding
concerning the Facilities; (ii) the Partnership has the power to execute the
Purchase Agreement and consummate the underlying transactions; and (iii) the
updated rent rolls which the Partnership has submitted to STP are accurate as
of the Signing Date. These representations and warranties will not survive the
closing. Furthermore, STP will purchase the Facilities "AS IS" and "WITH ALL
FAULTS" based upon its investigations and inspections of the Facilities,
subject to the disclosure of certain liabilities and subject to adjustments in
the purchase price for Environmental Material Defects.
Default. In the event of a default by STP under the Purchase Agreement,
the Partnership shall retain all earnest money and interest thereon as its sole
right to damages or any other remedy, except for STP's obligation to indemnify
the Partnership and restore the Facilities in connection with STP's
investigations and inspection of the Facilities and pay any title cancellation
fees, environmental assessment expenses and survey costs. In the event of a
default by the Partnership under the Purchase Agreement, all earnest money and
interest accrued thereon shall be returned to STP, as its sole right to damages
or any other remedy; provided that if the Partnership's default consists of its
refusal to deliver the closing documents specified in the Purchase Agreement,
then STP is entitled to sue for specific performance; provided further that STP
shall receive any payment of the Termination Amount to which it is entitled.
The sale to STP is also subject to certain conditions relating to good
title and absence of liens as more fully described in the Purchase Agreement.
In the event the proposed sale is not consummated, the General Partners
currently anticipate that they will continue to own the Facilities and monitor
their operation on behalf of the Partnership until such time as the Facilities
are sold with the consent of the holders of a majority of the outstanding
Units.
Recommendation of the General Partners
The General Partners believe that market conditions are favorable for the
disposition of the Facilities due, in part, to the current strong interest from
institutional purchasers of mini-warehouse facilities, the current improvement
in the operating performance of the Facilities and the current low interest
rates generally available to institutional purchasers. In addition, the
General Partners believe that the offer received from STP is fair to each
Limited Partner, although the General Partners have not received an independent
fairness opinion in connection with the proposed transaction. Prior to
accepting the STP offer, the Partnership evaluated bids from a number of other
institutional purchasers. After reviewing these other offers, the General
Partners determined that the final offer submitted by STP represented the most
favorable proposal to the Partnership based on purchase price, closing costs,
likelihood of closing, earnest money and timing of the transaction. As
described below, the Limited Partners have also received unsolicited offers
from investors seeking to purchase outstanding Units. All of these offers have
been lower on a per Unit basis than the amount of the estimated distribution
expected to result from the sale to STP.
<PAGE>
Unsolicited Tender Offers. The Limited Partners have received unsolicited
tender offers from two institutional investors seeking to purchase a portion of
the outstanding Units. On January 10, 1996, Everest commenced an unsolicited
tender offer to purchase up to 4.90% of the Units at a purchase price of $160
per Unit. The General Partners recommended that the Limited Partners not
accept the Everest offer primarily on the basis that the offering price was
inadequate. The Everest tender offer expired on February 12, 1996, and Everest
has advised the General Partners that approximately 4.15% of the outstanding
Units were tendered and purchased.
On January 23, PSI, a company which owns and manages mini-warehouse
facilities, commenced an unsolicited tender offer to purchase up to 25% of the
outstanding Units at a purchase price of $200 per Unit. The General Partners
expressed no opinion and remained neutral with respect to the PSI tender offer,
but apprised the Limited Partners of the proposed sale of the Facilities to
STP. The PSI tender offer expired on March 12, 1996. On April 2, 1996, PSI
reported that approximately 3.77% of the outstanding Units were tendered. PSI
also reported on that date that it had entered into a privately negotiated
agreement to purchase 10,999 additional Units.
On April 15, 1996, PSI commenced a second unsolicited tender offer to
purchase up to 32.5% of the outstanding Units at $240 per Unit. The PSI offer
expires on May 14, 1996 unless extended. The General Partners have expressed
no opinion and remain neutral with respect to this PSI tender offer. PSI also
reported on April 15, 1996 that it currently owns approximately 3.60% of the
outstanding Units, that the additional 10,999 Units are to be purchased from
Everest and assuming the purchase of such additional Units, it will own
approximately 7.80% of the outstanding Units.
Bid Solicitation. On February 12, 1996 the Partnership received an
unsolicited offer from STP to purchase the Facilities. In response to this
offer, the General Partners solicited offers for the Facilities from six other
institutional investors involved in the mini-warehouse business. Bids for the
Facilities were accepted by the Partnership between February 19, 1996 and
February 29, 1996. The top two offers for the facilities were $65.2 million
and $65.4 million. The Partnership contacted the two highest bidders and
accepted a final proposal from each bidder on Friday March 1, 1996. Based on
the General Partners' evaluation of these proposals, the Partnership agreed to
negotiate exclusively with STP. Formal contract negotiations with STP
commenced on March 4, 1996, and final terms of the transactions were reached on
March 6, 1996, at which time STP agreed to pay $67.1 million for the
Facilities.
Liquidity. No active public market exists for the Units and none has
existed since the original offering in October 1986. As a result, the Units
have been relatively illiquid and, when trades have occurred, Units have traded
(and continue to trade) at a discount when compared to the amount that would be
received if the Partnership's assets were sold at fair market value. The sale
of the Facilities to STP will enable Limited Partners to effectively liquidate
their position in the Partnership in accordance with the Partnership's stated
objectives.
<PAGE>
Trading Market. While there is no active public trading market for Units,
Units are traded on certain secondary markets. According to the most recent
issue of Partnership Spectrum (January/February 1996), trading prices for the
Units ranged from a high of $241 to a low of $190 during the 60 day period
ended January 31, 1996. Approximately 18 trades were effected during this
period. These prices do not reflect any commissions payable by the Sellers to
third parties and accordingly the actual proceeds received by a Seller are
generally lower than the prices reported.
Capitalization Rate. Interest on the part of institutional investors for
mini-storage facilities is currently very strong. Based on actual operating
cash flow (i.e., rental revenues minus property operating expenses, management
fees and capital improvements) from the Facilities during 1995, the proposed
STP Purchase Price represents a capitalization rate of approximately 8.75%,
which the General Partners believe is favorable to the Partnership. There is
no assurance that the current level of interest from the investment community
will continue or that such a favorable capitalization rate can be obtained in
the future.
Yield to Investors. Aggregate distributions of $152.96 per Unit have
previously been paid to the Limited Partners, including the payment of a
quarterly distribution of $5.78 per Unit on April 15, 1996. If the sale to STP
is consummated and the estimated liquidating distribution of $254 per Unit is
achieved, Limited Partners will have received total distributions of $406.96
representing approximately a 7.2% average annual rate of return on their
investment over the life of the Partnership.
The General Partners recommend a vote "FOR" the sale of the Facilities.
Certain Considerations
While General Partners recommend a vote "FOR" the sale of the Facilities
to STP, the following factors should be considered by the Limited Partners:
Valuation. On March 20, 1996, the Valuation Counselors Group and Darby &
Associates, Joint Venture ("Darby") estimated the current value of a Unit (the
"Darby Valuation") to be $281 per Unit. The Darby Valuation assumed that the
Partnership properties would be sold at year end 2000 and was calculated by (i)
increasing the 1995 year end operating cash flow by 4% annually and applying an
annual discount rate of 10% to determine a net present value; (ii) estimating
the net present value of proceeds from a sale of the Partnership's properties
by (a) applying a 10% capitalization rate to Operating Cash Flow in 2000, (b)
adjusting for a 3% cost of sale, and (c) applying a discount rate of 10% per
annum; and (iii) aggregating the net present values of the operating cash flow
and sales proceeds and dividing by the total number of Units outstanding. The
Darby Valuation, however, does not represent a current liquidation value, but
rather a projection of distributions during the next five years. In addition,
the Darby Valuation may be affected by changing market conditions, economic
factors, interest rates and other unforeseen events and the actual per Unit
value to Limited Partners in the event the properties are not sold until year
end 2000 may be greater or less than Darby's net present value calculation of
$281 per Unit. The General Partners believe that the sale to STP, which is
anticipated to result in a liquidating distribution of approximately $254 to
$257 per Unit, represents a fair liquidation value per Unit based on current
market conditions.
<PAGE>
A portion of the Darby Valuation describing certain assumptions and
summarizing Darby's conclusions regarding the value of the Units is attached to
this Consent Solicitation. The General Partners will provide a complete copy
of the Darby Valuation without charge upon request. Darby has been retained by
the Partnership each year since the inception of the Partnership to evaluate
the Units. Consequently, the Darby Valuation was not specifically prepared for
this Consent Solicitation. The Partnership has paid Darby an aggregate of
$24,250 in connection with valuations performed by Darby at year end 1994 and
1995. There exists no material relationship between the Partnership and Darby,
or between any affiliates of such entities.
Other Buyers/Future Distributions. Prior to accepting the offer from STP,
the Partnership received bids for the Facilities from a number of other
institutional investors. The amount which third parties were willing to offer
for the Facilities was in part influenced by prevailing market conditions as
well as the current and expected economic performance of the Facilities. The
Partnership accepted bids for the Facilities from six different prospective
purchasers up through and until February 29, 1996 and a final proposal shortly
thereafter from the two highest bidders. The Partnership believes that the
bidding process resulted in the Partnership obtaining a favorable proposal.
However, it is possible that investors may in the future be willing to pay more
for the Facilities than the offer accepted from STP because of improved
economic performance of the Facilities, improved market conditions or a
willingness to accept a lower return on his or her investment.
On April 15, 1996, PSI announced an unsolicited offer to purchase up to
77,000 Units for a price of $240 per Unit. Under the terms of PSI's offer, PSI
cannot purchase any tendered Units prior to May 14, 1996, which date may be
extended at PSI's option. For Unit holders who desire immediate cash, PSI's
offer, while lower than the estimated liquidating distribution resulting from a
sale to STP, provides an opportunity to sell at least a portion of their
investment in the Partnership.
Distributions to the Limited Partners have increased each year from 1993
through 1995. Distributions in those years were $17.07, $17.89 and $19.91 per
Unit, respectively. Additionally, the Partnership distributed $5.63 per Unit
in the first quarter of 1996 and $5.78 per Unit during April 1996, representing
current annualized yields of approximately 9.01% and 9.25% on their investment
respectively. Improved market conditions in cities where many of the
Partnerships facilities are located as well as increased rental income
resulting from ongoing capital improvement programs are in part responsible for
increases in distributions to Limited Partners. Although it is impossible to
determine with any accuracy whether the amount distributed to Limited Partners
will continue to increase, Limited Partners may receive higher quarterly
distributions and a higher liquidation value per Unit if the assets of the
Partnership are sold at a later date.
<PAGE>
Interests of General Partners. Pursuant to the Partnership Agreement, in
addition to the estimated range of liquidating distribution to Limited Partners
of $254 to $257 per Unit, the General Partners will be entitled to receive
distributions from operations of the Partnership for the last twelve month
period in the event the sale to STP is consummated. In addition, affiliates of
the General Partners will receive a brokerage commission equal to 3% of the
amount paid by STP in the event the sale of the Facilities is consummated.
Section 15.9 of the Partnership Agreement provides that the General Partners
may receive real estate commissions if they provide substantial services in
connection with the sale of the properties by the Partnership which commission
will not exceed the lesser of amounts customarily charged by others rendering
similar services or 3% of the sales price thereof. See "Plan of Sale and
Liquidation $ Distributions in Liquidation."
Prior Transactions with STP. An affiliate of Colonial was the general
partner of the following limited partnerships: (i) Colonial Storage Centers I
Ltd., (ii) Colonial Storage Centers II, Ltd. and (iii) Colonial Storage Centers
III, Ltd. On November 16, 1994, each of these limited partnerships sold all of
the mini-warehouse facilities owned by them to STP for an aggregate purchase
price of $45,000,000.
Liquidation of Partnership
Upon the release from escrow and delivery to the Partnership of the
Purchase Price, the General Partners intend to liquidate the Partnership as
soon as practicable, applying the net proceeds of the sale and any other funds
of the Partnership in the following manner:
(a) To the payment of the expenses of liquidation and the debts and
liabilities of the Partnership;
(b) To the setting up of any reserves which the General Partners may deem
reasonably necessary for any contingent or unforeseen liabilities or
obligations of the Partnership;
(c) To the General and Limited Partners as provided in the Partnership
Agreement.
Because the Partnership may be required to satisfy certain debts and
liabilities and establish reserves, as described above, the Partnership may pay
a portion of the liquidating distribution to the Limited Partners shortly after
consummation of the transaction with STP, and pay the balance, if any, in one
or more subsequent distributions.
Distributions in Liquidation
If the holders of a majority of the Units approve the sale of the
Facilities, and certain other conditions set forth in the Partnership Agreement
are satisfied, the Partnership will distribute the available funds of the
Partnership in the manner set forth in "Liquidation of Partnership" above. In
such event, the funds available for distribution would include previously
undistributed net cash receipts from operations prior to closing and working
capital reserves of the Partnership, as well as the net cash proceeds from the
sale of the Facilities to STP. The General Partners presently estimate that
the total distributions in liquidation will be approximately $254 to $257 per
Unit.
<PAGE>
In estimating the range of distributions in liquidation, the General
Partners have, (i) projected the anticipated amount of net cash receipts from
operations prior to closing and working capital reserves available for
distribution after payment of estimated operating expenses, (ii) deducted the
estimated proxy solicitation costs, professional fees and other expenses of
consummating the sale of the Facilities to STP and winding up the Partnership's
affairs, (iii) deducted commissions and distributions payable to the General
Partners as a consequence of the sale, and (iv) established a reserve for
future contingencies. Although the General Partners believe the assumptions
used are reasonable, there can be no assurance that the projected results will
be attained and, therefore, the actual amount of liquidating distributions to
the Limited Partners may be greater or less than the estimated range.
The following table illustrates the range of estimated distributions in
liquidation to be paid to the Limited Partners and General Partners if the sale
of the Facilities to STP is approved and consummated.
<PAGE>
Low High
----------- -----------
Distribution of Net Cash Receipts ("NCR"):
NCR on hand at 12/31/95 $ 1,360,015 $ 1,360,015
Estimated undistributed NCR 01/01/96 to Closing 154,774 304,774
Less: NCR distribution to General Partners(1) 708,737 723,737
----------- -----------
Estimated NCR distribution to Limited Partners $ 806,052 $ 941,052
=========== ===========
Distribution of Net Cash Proceeds ("NCP"):
Adjusted Purchase Price(2) $66,800,000 $67,050,000
Working Capital(3) 716,885 716,885
Less: Real Estate Brokerage Commissions(4) 2,006,000 2,013,000
Less: Estimated Closing and Solicitation Costs 300,000 250,000
Less: Reserve for Contingencies 750,000 550,000
----------- -----------
Estimated NCP Distribution to Limited
Partners(5) $64,460,885 $64,953,885
=========== ===========
Total Estimated Distributions to Limited
Partners:
Estimated NCR Distribution to Limited Partners $ 806,052 $ 941,052
Estimated NCP Distribution to Limited Partners 64,460,885 64,953,885
----------- -----------
Total Estimated Liquidating Distribution 65,266,937 65,894,937
=========== ===========
Estimated Liquidating Distribution per Unit $ 254(6) $ 257(6)
=========== ===========
<PAGE>
________________________
(1) Equal to 10% of total distributions of Net Cash Receipts during the 12
month period from July 1, 1995 through June 30, 1996. Limited Partners have
previously received aggregate distributions of $5,572,577 during such
period.
(2) See "Plan of Sale and Liquidation - Summary of Purchase Agreement" for
description of possible adjustments to Purchase Price.
(3) Represents return of capital distributable as Net Cash Proceeds.
(4) Equal to 3% of the Purchase Price. Payable to Affiliates of the General
Partners pursuant to the Partnership Agreement.
(5) Pursuant to the Partnership Agreement, Limited Partners are entitled to
receive cumulative distributions in a specified amount prior to the
distribution to the General Partners of any net cash proceeds from a sale of
the Facilities. The entire net cash proceeds from the sale of the
Facilities will be distributed to the Limited Partners due to a deficiency
of $14,181,436 in the required cumulative distribution to Limited Partners.
(6) The taxable portion of the liquidating distribution per Unit ranges from
$44.97 to $47.06 assuming a liquidating distribution per Unit of $254 to
$257.
<PAGE>
If the sale of the Facilities to STP is approved and consummated,
distributions in liquidation of the Partnership may be paid on more than one
occasion. In order to retain sufficient cash to satisfy the estimated
obligations of the Partnership and establish a reserve for contingencies, the
Partnership may pay a portion of the estimated liquidating distribution shortly
after consummating the transaction with STP and pay the balance in one or more
subsequent distributions. An initial distribution of at least $254 per Unit is
expected to be made no later than 30 days after the sale to STP is consummated.
The timing and amount of any distributions subsequent to the initial
distribution would depend upon the nature and extent of any remaining
liabilities or contingencies which may subsequently arise. The estimated
reserve for contingencies is approximately $2.14 to $2.92 per Unit. Such
contingencies may include legal and other fees stemming from future litigation
involving the Partnership. The General Partners are not presently aware of any
threatened litigation. In the absence of any such contingencies arising, the
General Partners anticipate that the reserves would be paid within twelve
months subsequent to the initial distribution to the Limited Partners. In the
event a future contingency arises, the reserve may be held by the Partnership
for a period of time in excess of twelve months. The General Partner will, as
soon as practicable, notify Unit holder of such contingency as well as the
amount of additional time that reserves will be held by the Partnership. The
Partnership will distribute such reserves as are retained by the Partnership as
soon as practicable.
At the time of the Partnership's formation in 1986, the purchase price of
a Unit was $250 and annual distributions per Unit since 1987 have been as
follows:
Amount Amount
Year Distributed Year Distributed
----- ------------ ------ -------------
1987 $ 3.75 1992 $16.49
1988 $15.63 1993 $17.07
1989 $17.52 1994 $17.89
1990 $17.17 1995 $19.91
1991 $16.12 1996 $11.41
Therefore, if the sale to STP is consummated and the lower estimated
liquidating distribution of $254 per Unit is achieved, Limited Partners are
expected to have received total distributions of $406.96 per Unit over the life
of the Partnership.
Regulatory Compliance
There are no federal or state approvals required and no federal or state
regulatory requirements which must be met in order to consummate the sale of
the Facilities under the Purchase Agreement.
<PAGE>
Accounting Treatment
The sale of the Facilities will be accounted for under generally accepted
accounting principles as a sale. Upon the closing of the sale of the
Facilities, the Partnership currently estimates that it will realize a gain for
accounting purposes of approximately $24.6 million.
Certain Federal Income Tax Consequences
The following discussion of the anticipated federal income tax
consequences of the proposed sale of the Facilities by the Partnership and the
subsequent liquidation of the Partnership is based upon data and records
compiled and maintained by the General Partners. The tax calculations in the
following discussion represent only estimates by the General Partners and have
not been subject to audit or other formal review by the Partnership's
accountants or tax advisers. The actual tax consequences to a Limited Partner
may differ depending upon factors personal to the Limited Partner's individual
tax situation. Therefore, with respect to the matters described above, as well
as all other tax aspects of a Limited Partner's interest in the Partnership,
Limited Partners should consult their tax advisors with specific reference to
their own tax situations.
In General. When a property is sold or otherwise disposed of, the gain or
loss recognized by the Partnership is allocated among the Limited and General
Partners in accordance with the Partnership Agreement and applicable federal
tax law. Gain and loss is recognized on a property-by-property basis. Gain is
recognized when the sales proceeds exceed the property's adjusted tax basis;
loss is recognized when the property's adjusted tax basis exceeds the sales
proceeds. The Purchase Agreement allocates the Purchase Price among the
Facilities and provides that the portion of the Purchase Price allocated to
land and improvements will not be below the Partnership's tax basis for such
land and improvements.
Partnership real property and depreciable property used in the
Partnership's business (which is not held for sale to customers in the ordinary
course of business) and held more than one year is "Section 1231 property."
Losses (if any) realized by the Partnership from the sale of Section 1231
property generally will constitute "passive activity losses" with respect to a
Limited Partner, other than certain Limited Partners eligible to treat all of
their rental real estate activities as a single activity. Passive activity
losses can only offset passive activity income, until the Limited Partner
disposes of his entire interest in the passive activity. Gain (if any)
realized by the Partnership from the sale of Section 1231 property will be
"Section 1231 gain" except as to depreciation subject to recapture under
Section 1245 of the Internal Revenue Code of 1986, as amended (the "Code") and
rent recapture under Section 467 of the Code. A Limited Partner's share of any
Section 1231 gain from the Partnership in any year will first offset any
current passive activity losses and suspended passive activity losses from the
Partnership and other passive activities; any excess will be combined with any
other Section 1231 gains or losses (exclusive of passive activity losses)
incurred by the Limited Partner. If the Section 1231 gains exceed the Section
1231 losses, such net gains will be treated as long-term capital gains.
However, a taxpayer's net Section 1231 gains will be treated as ordinary income
(rather than capital gain) to the extent of such taxpayer's net Section 1231
losses within the preceding five years. In the case of any property, the gain
from any sale may exceed the actual cash proceeds realized upon the sale.
<PAGE>
The General Partners anticipate that the gain recognized on the sale of
the Facilities will be predominantly taxable at long-term capital gain rates.
The Partnership has depreciated its real properties using the straight-line
method, and therefore there will be no depreciation recapture as ordinary
income of gain recognized upon the disposition of the real property. A portion
of the gain may be recognized as ordinary income with respect to the
Partnership's personal property, as all depreciation claimed on personal
property is subject to being fully recaptured as ordinary income (to the extent
of any gain) upon the sale or other disposition. A small portion of the
purchase price may be allocated to other items which are taxable at ordinary
income rates.
Each Limited Partner's basis in his Units is increased by the amount by
which his distributable share of income exceeds any distributions made or
deemed to be made (e.g., a deemed distribution resulting from a reduction of a
Limited Partner's share of the Partnership's liabilities) to him during such
year.
The distribution of cash to a Limited Partner pursuant to the liquidation
of the Partnership will be treated as a taxable distribution, with the amount
of taxable gain (or loss) realized equal to the difference between (i) the
amount of cash received plus such Limited Partner's share of any reduction of
Partnership liabilities and (ii) the tax basis of his unit.
Upon the liquidation of the Partnership, the Limited Partner's share of
any losses from the Partnership previously suspended pursuant to the passive
activity loss rules may be used to offset certain taxable income from other
sources, including the gain, if any, realized as a result of the liquidation.
Any remaining gain from the liquidation may be offset by current or previously
suspended losses from other passive activities of the Limited Partner.
Gain or loss realized on the liquidation will be treated as capital gain
or loss, and will be long term if the Limited Partner has held his Units for
more than one year when the liquidation is consummated. Capital losses
generally are deductible only to the extent of capital gains plus, in the case
of a non-corporate Limited Partner, up to $3,000 of ordinary income. Capital
losses realized upon the liquidation may be utilized to offset capital gains
from other sources and may be carried forward, subject to applicable
limitations.
Special considerations may be applicable to particular types of Limited
Partners. Each Limited Partner should consult his tax advisor regarding the
specific tax consequences of the sale of the Partnership's Facilities and
liquidation of the Partnership, under not only the U.S. federal income tax laws
but also applicable state, local, foreign or other tax laws.
The foregoing discussion does not take into account any state or local
income tax consequences or federal alternative minimum tax consequences.
Taxable Individual Limited Partners. Any gain realized by an individual
Limited Partner subject to Federal income taxation (a "Taxable Individual
Limited Partner") may possibly be offset by losses from other "passive
activities" under the passive loss rules of Section 469 of the Internal Revenue
Code of 1986, as amended (the "Code"). In the event a Taxable Individual
Limited Partner realizes a loss on disposition, such loss may be deductible
only to the extent permitted under the passive loss rules and other applicable
limitations. If a Taxable Individual Limited Partner recognizes a loss on his
<PAGE>
Units (and such Units have not been aggregated for purposes of the passive loss
rules with activities not currently being sold), loss recognized on the sale
should be deductible by such Taxable Individual Limited Partner against
non-passive income, subject to any other applicable limitations (including
capital loss limitations).
A bill passed by the U.S. Congress in November 1995, but vetoed by the
President, would have reduced the tax rate on long-term capital gains and
changed the treatment of long-term capital losses. Currently, it is uncertain
whether any change in the taxation of capital gains and losses will ultimately
be enacted, and if so, what the changes and their effective dates will be.
Taxable Individual Limited Partners should consider the possibility of such
changes, as well as other tax law changes, in evaluating the whether to approve
the sale of the Facilities.
In addition, other considerations could affect a Taxable Individual
Limited Partner's tax liability, including, but not limited to, alternative
minimum taxes and state income taxes.
Tax-exempt Limited Partners. Limited Partners that are generally exempt
from Federal income taxation (such as pension and retirement plans and
religious, charitable, scientific, literary and educational organizations (a
"Tax-exempt Limited Partner")) will generally not be taxed on a sale of the
Partnership's properties. However, in order to avoid tax on the sale, certain
entities exempt under Sections 501(c)(7), (c)(9), (c)(17) and (c)(20)) of the
Code must set aside or reserve the income from the sale for purposes related to
their tax-exempt status, as described in Section 512(a)(3) of the Code. In
addition, to the extent the Units of a Tax-exempt Limited Partner are
considered debt-financed property as a result of borrowing by such Partner, all
or part of the gain from the sale of the property and liquidation of the Units
may be taxable as unrelated business taxable income (although certain
"qualified organizations" may be excepted from taxation under Section 514(c)(9)
of the Code).
SOLICITATION PROCEDURES AND EXPENSES
The cost of preparing and mailing this Consent Solicitation and the
enclosed consent form will be borne by the Partnership. Consents may be
solicited on behalf of the Partnership by officers and employees of each
General Partner, but none of such officers or employees will receive any
compensation for soliciting consents other than their regular salaries.
Consents may also be solicited by MAVRICC, which has been retained by the
Partnership to assist in the solicitation process. Fees in connection with the
solicitation process, including the cost of printing and mailing this Consent
Solicitation and the enclosed consent form, but not including legal and
accounting fees, are estimated to be $40,000. Solicitations may be made by
various means including mail, telephone, telegraph and personal solicitation.
Banks, brokerage houses and other custodians, nominees and fiduciaries will be
requested to forward the solicitation materials to their customers for whom
they hold Units. The Partnership will reimburse such banks, brokers,
custodians, nominees and fiduciaries for their reasonable out-of-pocket
expenses.
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
As of the Record Date, no persons are known by the Partnership to be the
beneficial owners of more than five percent of the outstanding Units. However,
PSI has disclosed an agreement with Everest to purchase 10,999 Units, the terms
of which are not known to the Partnership. If such purchase is consummated,
PSI would own 7.80% of the outstanding Units. The General Partners and their
respective partners, officers and directors do not own any Units in the
Partnership. Relatives and affiliates of the partners, officers and directors
of the General Partners also own no Units in the Partnership.
LEGAL PROCEEDINGS
The Partnership is not subject to any material pending legal proceedings,
nor were any such proceedings terminated during the fourth quarter of 1995.
ADDITIONAL INFORMATION
The principal executive offices of Balcor are located at Bannockburn Lake
Office Plaza, 2355 Waukegan Road, Suite A-200, Bannockburn, Illinois 60015,
(telephone: (847) 267-1600). The principal executive offices of Colonial are
located at 4381 Green Oaks Boulevard West, Suite 100, Arlington, Texas,
76016-4468 (telephone: (817) 561-0100).
The Units are registered pursuant to Section 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). As such, the
Partnership currently is subject to the informational requirements of the
Exchange Act and, in accordance therewith, is obligated to file periodic
reports and other information with the Commission relating to its business,
financial condition and other matters. Reports and other information filed by
the Partnership can be inspected and copied at the Public Reference Branch of
the Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549,
and at the Commission's Regional Offices located at Seven World Trade Center,
New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material can be obtained at prescribed
rates from the Public Reference Branch of the Commission located at 450 Fifth
Street, N.W., Washington, D.C. 20549. The Partnership's registration and
reporting requirements under the Exchange Act will continue after the sale of
the Facilities until such time as the Partnership is dissolved.
<PAGE>
FINANCIAL INFORMATION
Selected Financial Data
Year Ended December 31,
---------------------------------------------------------
1995 1994 1993 1992 1991
----------- --------- --------- --------- ---------
Rental income $ 8,821,564 8,385,428 7,703,850 7,174,918 6,837,782
Interest income $ 145,334 96,709 59,644 76,739 133,419
Net income $ 4,268,952 3,909,878 3,149,115 2,650,263 2,338,757
Net income per
Limited
Partnership
Interest $ 16.45 15.07 12.14 10.21 9.01
Taxable income $ 4,627,553 4,243,760 3,483,158 3,019,741 2,737,570
Taxable income per
Limited
Partnership
Interest $ 17.83 16.35 13.42 11.64 10.55
Cash and cash
equivalents $ 3,595,948 3,242,344 2,648,551 2,611,021 2,391,363
Total
mini-warehouse
properties, net
of accumulated
depreciation $41,768,686 43,075,131 44,253,257 45,388,343 46,764,159
Total assets $45,544,330 46,504,585 47,121,971 48,385,013 49,914,775
Distributions to
Limited Partners $ 5,114,958 4,596,013 4,385,352 4,236,355 4,141,081
Distributions per
Limited
Partnership
Interest $ 19.91 17.89 17.07 16.49 16.12
Properties owned
on December 31 24 24 24 24 24
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Summary of Operations. Improved market conditions in cities where many of
the Partnership's Facilities are located and increased rental income resulting
from ongoing capital improvement programs were primarily responsible for the
increases in net income generated by the Partnership in 1995, 1994 and 1993.
No material events occurred during these periods which significantly impacted
the net income of the Partnership. Further discussion of the Partnership's
operations is summarized below.
<PAGE>
Operations
1995 Compared to 1994. Rental income increased during 1995 when compared
to 1994 primarily due to increased rental rates of approximately 11.3% in
Georgia and approximately 6.0% in Florida. Property management fees, which are
6.0% of gross mini-warehouse rents and 5.0% of gross office warehouse rents,
increased correspondingly.
Interest income on short term investments increased from 1994 to 1995 due
to an increase in cash available for investment and higher interest rates.
1994 Compared to 1993. Rental income increased during 1994 as compared to
1993 due to an increase in average rental rates of approximately 6.4%. Growth
was particularly strong in Kentucky, Tennessee, Georgia and Florida. As a
result of this increase, property management fees also increased during this
period.
Due to higher interest rates and amounts available for investment,
interest income on short term investments increased during 1994 as compared to
1993.
Increased payroll and maintenance expenses resulted in an increase in
property operating expenses for 1994 as compared to 1993. Payroll expenses
increased approximately 18.0% due to an increase in incentive payments to
property managers and an increase in salary rates for new employees.
Maintenance expenses increased approximately 17.0% due primarily to snow
removal in February and March at sites in Wisconsin, Illinois, Ohio, Kentucky
and Virginia.
The full amortization of non-compete agreements in 1993 resulted in a
decrease in depreciation and amortization expenses in 1994 as compared to 1993.
General and administrative expenses increased during 1994 as compared to
1993 primarily due to an increase in accounting and asset management costs.
Liquidity and Capital Resources. The cash position of the Partnership
increased from December 31, 1994 to December 31, 1995. The Partnership's cash
flow provided by operating activities in 1995 was generated primarily by the
operations of the mini-warehouse and office-warehouse properties and interest
income earned on the Partnership's short-term investments, which was partially
offset by administrative expenses. This cash flow was used in investing
activities to make capital improvements to the Facilities and in financing
activities to provide distributions to the Limited Partners.
Accounts receivable net of the related allowance for doubtful accounts
increased from December 31, 1994 to December 31, 1995 due to the level and
timing of collection efforts. The timing of collection efforts are determined
by individual state law. There have been no changes in the credit terms
extended to the Partnership's customers nor in the method used to allow for
doubtful accounts.
<PAGE>
In January 1996, the Partnership paid $1,446,370 ($5.63 per Unit) to the
Limited Partners, representing the distribution for the fourth quarter of 1995.
Quarterly distributions increased from $5.31 per Unit for the third quarter of
1995 to $5.63 per Unit for the fourth quarter of 1995 due to improved operating
results at several of the Partnership's Facilities. Including the January 1996
distribution, the Partnership has distributed $147.18 per $250 Unit of which
$145.80 represents net cash receipts and $1.38 represents net cash proceeds.
It is anticipated that, in the event the sale of the Partnership's Facilities
is consummated, net cash proceeds and remaining net cash receipts from
operations prior to closing will be distributed to the Limited Partners and
General Partners in accordance with the Partnership Agreement. Should the sale
not be consummated, the General Partners believe the cash generated from
continued operation of the Facilities should enable the Partnership to continue
making quarterly distributions to Limited Partners. However, the level of
future cash distributions to Limited Partners will be dependent upon the amount
of cash flow generated by the Partnership's Facilities as to which there can be
no assurance. Pursuant to the Partnership Agreement, the General Partners are
entitled to 10% of net cash receipts from operations available for
distribution, subject to certain subordinations in the periods following the
termination of the offering. From the inception of the offering through
December 31, 1995, the General Partners' share of net cash receipts totaled
approximately $4,040,000, of which $3,410,000 is subordinated.
The General Partners intend to retain on behalf of the Partnership cash
reserves deemed adequate to meet working capital requirements as they may
arise.
In 1995 the Financial Accounting Standards Board issued Statement SFAS No.
121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." SFAS No. 121 requires that long-lived assets and
certain intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Partnership periodically reevaluates the carrying amounts of
its long-lived assets and the related depreciation and amortization periods as
discussed in the notes to the Partnership's Financial Statements, and the
Partnership believes that the adoption of SFAS No. 121 did not have a material
effect on its financial statements.
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 can be expected to increase operating costs and replacement costs and
may lead to increased rental revenue and real estate values.
Financial Statements and Supplementary Data
See Index to Financial Statements on Page F-1 of this Consent
Solicitation.
The supplemental financial information specified by Item 302 of Regulation
S-K is not applicable.
<PAGE>
The net effect of the differences between the financial statements and the
tax information is summarized as follows:
December 31, 1995 December 31, 1994
----------------------- ----------------------
Financial Financial
Statements Tax Return Statements Tax Return
----------- ----------- ---------- ----------
Total assets $ 45,544,330 56,757,543 46,504,585 57,361,197
Partners' capital
accounts:
General Partners $ 220,783 246,046 178,093 199,771
Limited Partners $ 44,451,350 55,641,300 45,340,046 56,174,980
Net Income:
General Partners $ 42,690 46,276 39,099 42,438
Limited Partners $ 4,226,262 4,581,277 3,870,779 4,201,322
Per Limited Partnership
Interest $ 16.45 17.83 15.07 16.35
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
There have been no changes in or disagreements with accountants on any
matter of accounting principles, practices or financial statement disclosure.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report
Financial Statements:
Balance Sheets as of December 31, 1995 and 1994
Statements of Income, years ended December 31, 1995, 1994 and 1993
Statements of Partners' Capital, years ended
December 31, 1995, 1994 and 1993
Statements of Cash Flows, years ended December 31, 1995, 1994 and 1993
Notes to Financial Statements
Schedules are omitted for the reason that they are inapplicable or equivalent
information has been included elsewhere herein.
<PAGE>
Financial Statements and Supplementary Data
INDEPENDENT AUDITORS' REPORT
The Partners
Balcor/Colonial Storage Income Fund - 86:
We have audited the financial statements of Balcor/Colonial Storage Income Fund
- - 86 (an Illinois Limited Partnership) as listed in the accompanying index.
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/Colonial Storage Income
Fund - 86 as of December 31, 1995 and 1994, and the results of its operations
and its cash flows for each of the years in the three-year period ended
December 31, 1995, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Fort Worth, Texas
February 9, 1996, except as to
Note 3 which is as of March 6, 1996
<PAGE>
Balcor/Colonial Storage Income Fund - 86
(An Illinois Limited Partnership)
Balance Sheets
December 31, 1995 and 1994
1995 1994
Assets (note 3) ---------- ----------
Cash and cash equivalents $ 3,595,948 3,242,344
Accounts receivable, net of allowance for doubtful
accounts of $12,079 and $20,781 in 1995 and 1994,
respectively 87,047 72,413
Other 92,649 114,697
---------- ----------
3,775,644 3,429,454
---------- ----------
Mini-warehouse facilities:
Land 16,925,647 16,925,647
Buildings 36,597,146 36,456,425
Furniture, fixtures and equipment 903,419 815,712
---------- ----------
54,426,212 54,197,784
Less accumulated depreciation 12,657,526 11,122,653
---------- ----------
Mini-warehouse facilities, net of accumulated
depreciation 41,768,686 43,075,131
---------- ----------
$45,544,330 46,504,585
========== ==========
Liabilities and Partners' Capital (note 3)
Accounts payable $ 15,967 11,086
Due to affiliates (note 2) 59,264 154,794
Accrued liabilities, principally real estate taxes 361,829 382,684
Security deposits 72,678 93,321
Deferred income 362,459 344,561
---------- ----------
Total liabilities 872,197 986,446
Partners' capital (256,904 Limited Partnership
Interests issued and outstanding) 44,672,133 45,518,139
---------- ----------
$45,544,330 46,504,585
========== ==========
See accompanying notes to financial statements.
<PAGE>
Balcor/Colonial Storage Income Fund - 86
(An Illinois Limited Partnership)
Statements of Income
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993
-------- -------- --------
Income:
Rental $8,821,564 8,385,428 7,703,850
Interest 145,334 96,709 59,644
--------- --------- ---------
8,966,898 8,482,137 7,763,494
Expense: --------- --------- ---------
Property operating 2,262,621 2,207,178 2,118,600
Depreciation and amortization 1,534,873 1,508,081 1,704,614
Property management fees (note 2) 495,531 477,153 447,627
General and administrative (note 2) 404,921 379,847 343,538
--------- --------- ---------
4,697,946 4,572,259 4,614,379
--------- --------- ---------
Net income $4,268,952 3,909,878 3,149,115
========= ========= =========
Limited Partners' share of net income
($16.45, $15,07 and $12.14 per Interest
for 1995, 1994 and 1993, respectively) $4,226,262 3,870,779 3,117,624
General Partners' share of net income 42,690 39,099 31,491
--------- --------- ---------
$4,268,952 3,909,878 3,149,115
========= ========= =========
See accompanying notes to financial statements.
<PAGE>
Balcor/Colonial Storage Income Fund - 86
(An Illinois Limited Partnership)
Statements of Partners' Capital
Years ended December 31, 1995, 1994 and 1993
Limited General Total
Partners Partners
---------- -------- ----------
Balance at December 31, 1992 $47,333,008 107,503 47,440,511
Net income 3,117,624 31,491 3,149,115
Cash distributions ($17.07 per Interest) (4,385,352) (4,385,352)
---------- -------- ----------
Balance at December 31, 1993 46,065,280 138,994 46,204,274
Net income 3,870,779 39,099 3,909,878
Cash distributions ($17.89 per Interest) (4,596,013) (4,596,013)
---------- -------- ----------
Balance at December 31, 1994 45,340,046 178,093 45,518,139
Net income 4,226,262 42,690 4,268,952
Cash distributions ($19.91 per Interest) (5,114,958) (5,114,958)
---------- -------- ----------
Balance at December 31, 1995 $44,451,350 220,783 44,672,133
========== ======== ==========
See accompanying notes to financial statements.
<PAGE>
Balcor/Colonial Storage Income Fund - 86
(An Illinois Limited Partnership)
Statements of Cash Flows
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993
---------- ---------- ----------
Operating activities:
Net income $4,268,952 3,909,878 3,149,115
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 1,534,873 1,508,081 1,704,614
Net change in:
Net accounts receivable (14,634) 10,490 12,330
Other assets 22,048 22,563 (50,844)
Accounts payable 4,881 (7,063) 7,442
Due to affiliates (95,530) 102,881 10,402
Accrued liabilities (20,855) (11,587) (63,197)
Security deposits (20,643) (37,415) (27,874)
Deferred income 17,898 21,933 46,422
Net cash provided by operating ---------- ---------- ----------
activities 5,696,990 5,519,761 4,778,410
---------- ---------- ----------
Investing activities:
Additions to mini-warehouse facilities (228,428) (329,955) (365,528)
---------- ---------- ----------
Net cash used in investing activities (228,428) (329,955) (365,528)
---------- ---------- ----------
Financing activities:
Distributions to Limited Partners (5,114,958) (4,596,013) (4,385,352)
---------- ---------- ----------
Net cash used in financing activities (5,114,958) (4,596,013) (4,385,352)
---------- ---------- ----------
Net change in cash and cash equivalents 353,604 593,793 37,530
Cash and cash equivalents at beginning
year 3,242,344 2,648,551 2,611,021
---------- ---------- ----------
Cash and cash equivalents at end of year $ 3,595,948 3,242,344 2,648,551
========== ========== ==========
See accompanying notes to financial statements.
<PAGE>
Balcor/Colonial Storage Income Fund - 86
(An Illinois Limited Partnership)
Notes to Financial Statements
December 31, 1995, 1994 and 1993
(1) Summary of Significant Accounting Policies
(a) Description of Partnership
Balcor/Colonial Storage Income Fund - 86 (the
"Partnership"), is a limited partnership formed in May 1986.
The Partnership Agreement provides that Balcor Storage
Partners-86 (an Illinois general partnership) and Colonial
Storage 86, Inc. (a Texas corporation) are the General
Partners of the Partnership and provides for the admission
of Limited Partners through the sale of up to 400,000
Limited Partnership Interests at $250 per Interest, of which
256,904 ($64,226,000) Limited Partnership Interests were
sold prior to the termination of the offering.
The principal purpose of the Partnership is to acquire,
develop, own, maintain, operate, lease and hold for capital
appreciation and current income, mini-warehouse facilities
offering storage space for business and personal use and
office/warehouses offering a combination of office and
commercial warehouse space. The Partnership acquired
from affiliates four mini-warehouse facilities in 1986 and
seven mini-warehouse facilities in 1987. Additionally, the
Partnership acquired from nonaffiliated parties four mini-
warehouse facilities in 1987 and nine mini-warehouse
facilities in 1988. These properties are located in various
markets within the United States.
(b) Allocation of Net Income and Profits
The Partnership Agreement provides that net income (after
a deduction for any incentive management fees) from
operations shall be allocated 99% and 1% to the Limited
Partners and General Partners, respectively.
Additionally, when a property is sold or otherwise disposed
of, the General Partners will be allocated profits equal to
the greater of 1% of total profits or the amount of Net
Cash Proceeds distributable to the General Partners from
the sale (in excess of subordinated Net Cash Receipts,
note 1(c)).
The remainder of the profits will be allocated to the Limited
Partners.
<PAGE>
(c) Cash Distributions
Net Cash Receipts available for distribution from operations
shall be distributed 90% to the Limited Partners and 10% to
the General Partners, 9% as a partnership incentive
management fee and 1% as their distributable share from
operations. Distributions from operations to the General
Partners are subordinated to receipt by the Limited Partners
of a Cumulative Distribution of 6% of Adjusted Original
Capital ($63,868,903 at December 31, 1995) during the first
twelve month period following the termination of the
offering of Interests, 8% during the second twelve month
period following the termination of the offering of Interests,
and 10% during each twelve month period thereafter.
Net Cash Proceeds from sales or refinancings shall be
distributed first to the Limited Partners until they have
received an amount equal to their Original Capital plus any
deferred portion of the Cumulative Distribution. If the
receipt of any portion of the General Partners' 10% share of
Net Cash Receipts from operations has been deferred
(approximately $3,410,000 has been deferred as of
December 31, 1995), then available Net Cash Proceeds shall
thereafter be distributed to the General Partners to the
extent of such deferred amounts. Thereafter, remaining Net
Cash Proceeds shall be distributed 85% to the Limited
Partners and 15% to the General Partners.
(d) Cash and Cash Equivalents
The Partnership considers all highly liquid investments with
maturities at date of purchase of three months or less to be
cash equivalents.
(e) Mini-Warehouse Facilities
Costs associated with the appraisal and acquisition of mini-
warehouse facilities are capitalized.
The buildings, furniture, fixtures and equipment are
depreciated using the straight-line method over their
estimated useful lives ranging from 5 to 25 years.
Maintenance and repairs are charged to expense when
incurred. Expenditures for improvements are charged to the
related asset account.
The Partnership records its investments in real estate at cost,
and periodically reevaluates the propriety of the carrying
amounts of its properties as well as the amortization period to
determine whether current events and circumstances warrant
adjustments to the carrying amounts or a revised estimate of
the useful life. The Partnership compares the undiscounted
future net cash flows expected to result from the use of each
of its properties to the carrying amount of that property to
determine whether the Partnership shall recognize an impairment
loss. The Partnership believes that no impairment has occurred
<PAGE>
and that no reduction of the estimated useful lives is
warranted.
When properties are disposed of, the related costs and
accumulated depreciation will be removed from the
respective accounts, and any gain or loss on disposition will
be recognized in accordance with generally accepted
accounting principles.
(f) Income Taxes
Taxable income or loss of the Partnership is includable in
the income tax returns of the individual partners; therefore,
no provision for income taxes has been made in the
accompanying financial statements.
The tax bases of the Partnership's assets and liabilities
exceeded the amounts recorded in the Financial Statements
at December 31, 1995 and 1994, by $11,213,213 and
$10,856,612, respectively.
(g) Use of Estimates
Management of the Partnership has made a number of estimates
and assumptions relating to the reporting of Assets and
Liabilities to prepare these financial statements in conformity
with Generally Accepted Accounting Principles. Actual results
could differ from those estimates.
(h) Fair Value of Financial Instruments
In accordance with the reporting requirements of Statement on
Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," the Partnership calculates the
fair value of its financial instruments and 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.
(2) Transactions With Affiliates
The Partnership has an agreement with Colonial Storage Management 86,
Inc., an affiliate of Colonial Storage 86, Inc., a General Partner, to
supervise and direct the business and affairs associated with the mini-
warehouse and office/warehouse facilities for a fee of 6% and 5%,
respectively, of the gross revenues of the facilities.
Certain general and administrative expenses are reimbursed to
affiliates of the General Partners to cover administrative requirements
of the Partnership.
Fees and expenses paid and payable by the Partnership to affiliates for
the years ended December 31, 1995, 1994 and 1993, are:
<PAGE>
1995 1994 1993
--------- --------- --------
Paid Payable Paid Payable Paid Payable
------- ------- ------- ------- ------- -------
Property management
fees $ 573,655 40,619 396,555 118,743 444,086 38,145
General and
administrative
expenses $ 122,269 18,645 226,199 36,051 218,301 13,768
(3) Subsequent Events
On March 6, 1996 the Partnership entered into a purchase contract with
an unaffiliated third party to purchase the assets and liabilities
related to all twenty four of its mini-warehouse facilities (the
"Properties"), subject to certain contingencies, for cash of
$67,100,000. The contract contemplates that the sale of the Properties
will be consummated on May 15, 1996, but may, under certain limited
circumstances, be extended to not later than July 15, 1996.
The sale of the Properties is contingent upon, among other things, the
completion of purchasers satisfactory review of survey, title and
environmental matters. Pursuant to the contract, the results of such
review may cause adjustments to the final purchase price or, in certain
events, could result in the termination of the purchase contract.
Additionally, the Partnership Agreement requires the approval of the
holders of a majority of the then outstanding Interests for any such
sale. If such approval is obtained from the Limited Partners, the
Properties will be sold and all available proceeds will be distributed
to the Partners in accordance with the Partnership Agreement.
<PAGE>
APPENDIX A
Excerpt from Estimate of current value of a Unit by the Valuation Counselors
Group and Darby & Associates, Joint Venture, dated March 20, 1996.
VALUATION OF THE EQUITY CASH FLOWS
As of December 31, 1995, the General Partner adopted a current strategy to
terminate the Partnership at year-end 2000. Prior to December 31, 1995, the
valuation of a Limited Partnership Interest was based upon a ten-year moving
period. This change resulted in a minor reduction in the value of a Limited
Partnership Interest.
The fair market value of the Equity Cash Flows is equal to the sum of the
present values of the Operating Cash Flows and the Sales Proceeds. The
General Partner has prepared individual cash flows for each property based on a
termination of the Partnership year-end 2000. The projected Operating Cash
Flows from the properties are increased 4% annually (a reduction from 5% used
in 1988) and have been discounted at an annual rate of 10.00% to a net present
value. The Agreement calls for the General Partner to receive 10% of the
Operating Cash Flows and the remaining 90% is Limited Partnership Interests.
The General Partners share, however, is subordinated to the Limited Partners
preferred cumulative rates.
Sales Proceeds are calculated on the basis of a 10.00% capitalization rate for
the year-end 2000, adjusting for a 3% sales commission and a 4% escalation
rate. The net proceeds from the sale have been discounted at an annual rate of
10.00% to a net present value.
For the purpose of this valuation we have included:
A summary of the Equity Cash Flows as of December 31, 1995, is as follows:
Taxable & General Total
Tax Exempt Partner
----------- ----------- -----------
Operating Cash Flows $25,162,482 $ 0 $25,162,482
Sales Proceeds $45,238,114 $ 0 $45,238,114
----------- ----------- -----------
Total $70,400,596 $ 0 $70,400,596
<PAGE>
CONCLUSION OF VALUE
Based on the various analyses of the components of the
Partnership's Interests presented in this report, our conclusions
of value are summarized in the following Schedule C.
SCHEDULE C
SUMMARY OF FAIR MARKET CALCULATION
DECEMBER 31, 1995
Taxable & General
Tax-Exempt Partner Total
----------- ------- ----------
Cash:
Working Capital/ $2,903,447 0 2,903,447
Undistributed NCR(1) 0 0 0
Fund Admin Expenses (1,768,535) 0 (1,768,535)
----------- ------- ----------
$1,134,912 $ 0 $1,134,912
Present Value of Equity ----------- ------- ----------
Cash Flows:
Operating Cash Flows(1) 25,162,482 0 25,162,482
Sales Proceeds 45,238,114 45,238,114
----------- ------- ----------
$70,400,596 $ 0 70,400,596
----------- ------- ----------
Offering Expenses 640,250 640,250
Total Value of Assets $72,175,758
-----------
Number of Interests 256,904
-----------
Value Per Interest $280.94
-----------
Rounded $281.00
-----------
Adjusted Original Capital $250.00
-----------
__________________
(1) Current fund distributions are falling short of the L/P's
cumulative preferred return rate, and are projected to
continue to fall short such that cumulative return
deficiencies will prohibit the GP from receiving its 10% share
of NCR.
<PAGE>
CONSENT FORM
BALCOR/COLONIAL STORAGE INCOME FUND - 86
c/o MAVRICC MANAGEMENT SYSTEMS, INC.
1845 Maxwell, Suite 101
Troy, Michigan 48084-4510
This consent is being solicited on behalf of Balcor/Colonial Storage
Income Fund-86 (the "Partnership") by Balcor Storage Partners-86 and Colonial
Storage 86, Inc., the General Partners of the Partnership.
The undersigned, a Limited Partner of the Partnership hereby votes the
number of Units held of record by the undersigned on April 1, 1996, as follows,
by checking the appropriate blank below in blue or black ink:
Proposal to approve the sale of substantially all of the
assets of the Partnership as described in the Consent
Solicitation of Limited Partners dated April 29, 1996.
_ For _ Against _ Abstain
THE GENERAL PARTNERS OF THE PARTNERSHIP RECOMMEND THAT ALL LIMITED PARTNERS
VOTE FOR THE PROPOSAL.
- ------------------------------------- ------------------ ---------------
Signature of Custodian or Trustee Signature Date
(Required for all Custodial Accounts)
--------------------------
Print Name
-------------------------- ---------------
Signature, if held jointly Date
--------------------------
Print Name
When limited partnership interest(s) are held by joint
tenants, both joint tenants should sign. When signing
as attorney, executor, administrator, trustee or
guardian, please give full title as such. When the
limited partnership interest(s) are held of record by
a tax-exempt Limited Partner, the signature of the
custodian or trustee is also required. If a
corporation, please have signed in full corporate name
by the president or other authorized officer. If a
partnership, please have signed in partnership name by
an authorized person. In the absence of specified
instructions, signed consents will be counted as a
vote FOR the proposal set forth above.
PLEASE MARK, SIGN, DATE AND RETURN THIS CONSENT FORM BY MAY 10, 1996 USING THE
ENCLOSED ENVELOPE.
