UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-15648
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BALCOR EQUITY PENSION INVESTORS-IV
A REAL ESTATE LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
Illinois 36-3447130
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Waukegan Road
Bannockburn, Illinois 60015
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 267-1600
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Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
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(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
<PAGE>
PART I
Item 1. Business
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Balcor Equity Pension Investors-IV A Real Estate Limited Partnership (the
"Registrant") is a limited partnership formed in 1986 under the laws of the
State of Illinois. The Registrant raised $46,371,500 from sales of Limited
Partnership Interests. The Registrant has retained cash reserves from the sale
of its real estate investments for contingencies which exist or may arise. The
Registrant's operations currently consist of interest income earned on
short-term investments and the payment of administrative expenses.
The Registrant originally funded one acquisition loan and acquired two real
property investments and subsequently foreclosed on the acquisition loan. The
Registrant has since disposed of all of these investments. The Partnership
Agreement generally provides that the proceeds of any sale or refinancing of
the Registrant's properties will not be reinvested in new acquisitions, but
will be distributed to the extent not required to meet the Registrant's cash
requirements.
The Partnership Agreement provides for the dissolution of the Registrant upon
the occurrence of certain events, including the disposition of all interests in
real estate. In December 1998, the Registrant sold the Evanston Plaza Shopping
Center, its final real estate investment. The Registrant has retained a portion
of the cash from the sale of its real estate investments to satisfy obligations
of the Registrant as well as to establish a reserve for contingencies. The
timing of the termination of the Registrant and final distribution of cash will
depend upon the nature and extent of liabilities and contingencies which exist
or may arise. Such contingencies may include legal and other fees and costs
stemming from litigation involving the Registrant including, but not limited
to, the lawsuit discussed in "Item 3. Legal Proceedings" and potential costs to
be incurred if the Registrant initiates legal proceedings against third parties
relating to the environmental issues at the Evanston Plaza Shopping Center. Due
to these matters, the Registrant will not be dissolved and reserves will be
held by the Registrant until the conclusion of all contingencies. There can be
no assurances as to the time frame for conclusion of these contingencies.
During December 1998, the Registrant sold the Evanston Plaza Shopping Center in
an all cash sale for $3,500,000. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations-Liquidity and Capital
Resources" for additional information.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations-Liquidity and Capital Resources" for information regarding the
Registrant's Year 2000 readiness.
The Registrant no longer has an ownership interest in any real estate
investment. Except with regard to the Evanston Plaza Shopping Center, described
below under "Item 1. Other Information", the General Partner is not aware of
any material potential liability relating to environmental issues or conditions
affecting real estate formerly owned by the Registrant.
<PAGE>
The officers and employees of Balcor Equity Partners-IV, the General Partner of
the Registrant, and its affiliates perform services for the Registrant. The
Registrant currently has no employees engaged in its operations.
Other Information
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Evanston Plaza
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As previously reported, on December 8, 1997, the Registrant contracted to sell
the Evanston Plaza Shopping Center, Evanston, Illinois, to an unaffiliated
party, Joseph Freed Holdings, L.L.C., an Illinois limited liability company.
The sale closed on December 9, 1998 for a sale price of $3,500,000 less credits
to the purchaser of $341,681 related to leasing commissions and roof repairs.
The Registrant paid closing costs of $153,755 including $122,500 to
unaffiliated parties as a brokerage commission. The Registrant received the
remaining proceeds of approximately $3,004,564.
As previously reported, an environmental study of Evanston Plaza in 1997
identified certain environmental issues on the site including the presence of
arsenic, lead and PNA's in the ground soil and vinyl chloride in the ground
water. The Registrant filed a Remedial Action Plan ("RAP") with the Illinois
Environmental Protection Agency ("IEPA"). In November 1998, the Registrant
received a letter from the IEPA approving the RAP, as revised. The RAP
contemplates the remediation of most of the contaminated ground soil at the
property. However, there may be contaminated soil under certain parts of the
center (principally under existing stores) that is not anticipated to be
remediated under the RAP. Additionally, the contaminants present in the ground
water are not required to, and therefore will not be, remediated under the RAP.
The purchaser of the property has agreed to indemnify the Registrant for the
first $3,700,000 of costs incurred in connection with the remediation of the
property, including amounts expended by the purchaser for those items covered
in the RAP. Management does not believe that the total costs of remediation
under the RAP will exceed $3,700,000.
The purchaser of the property has assigned to the Registrant the right to
pursue claims against third parties resulting from the environmental
contamination at the property, up to $3,700,000. The Registrant has retained
counsel to examine these potential claims. Such parties may include the
entities that owned or operated the site prior to the Registrant. Such claims
would seek to recover costs up to $3,700,000 incurred in connection with the
remediation of the property. However, the Registrant has not completed an
analysis of the potential claims; additionally, until the remediation under the
RAP is substantially complete, the Registrant's ability to pursue this claim is
limited. Therefore, there can be no assurances that the Registrant will, in
fact, commence such litigation or what the time frame might be for commencement
of the litigation.
Item 2. Properties
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As of December 31, 1998, the Registrant did not own any properties.
<PAGE>
In the opinion of the General Partner, the Registrant has obtained adequate
insurance coverage for property liability and property damage matters.
See Notes to Financial Statements for other information regarding former real
estate property investments.
Item 3. Legal Proceedings
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Dee vs. Walton Street Capital Acquisition II, LLC
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On June 14, 1996, a proposed class and derivative action complaint was filed,
Dee vs. Walton Street Capital Acquisition II, LLC (Circuit Court of Cook
County, Illinois, County Department, Chancery Division ("Chancery Court"), Case
No. 96 CH 06283) (the "Dee Case"), naming the General Partner and the general
partners (the "Balcor Defendants") of nine other limited partnerships sponsored
by The Balcor Company (together with the Registrant, the "Affiliated
Partnerships""), as well as the Affiliated Partnerships, as defendants.
Additional defendants were Insignia Management Group ("Insignia") and Walton
Street Capital Acquisition II, LLC ("Walton"") and certain of their affiliates
and principals (collectively, the "Walton and Insignia Defendants"). The
complaint alleged, among other things, that the tender offers for the purchase
of limited partnership interests in the Affiliated Partnerships made by a joint
venture consisting of affiliates of Insignia and Walton were coercive and
unfair.
On July 1, 1996, another proposed class action complaint was filed in the
Chancery Court, Anderson vs. Balcor Mortgage Advisors (Case No. 96 CH 06884)
(the "Anderson Case"). An amended complaint consolidating the Dee and Anderson
Cases (the "Dee/Anderson Case") was filed on July 25, 1996.
The complaint seeks to assert class and derivative claims against the Walton
and Insignia Defendants and alleges that, in connection with the tender offers,
the Walton and Insignia Defendants misused the Balcor Defendants' and
Insignia's fiduciary positions and knowledge in breach of the Walton and
Insignia Defendants' fiduciary duty and in violation of the Illinois Securities
and Consumer Fraud Acts. The plaintiffs amended their complaint on October 8,
1996, adding additional claims. The plaintiffs requested certification as a
class and derivative action, unspecified compensatory damages and rescission of
the tender offers. Each of the defendants filed motions to dismiss the
complaint for failure to state a cause of action. On January 7, 1997, the
Chancery Court denied the plaintiffs' motion for leave to amend the complaint
and dismissed the matter for failure to state a cause of action, with
prejudice.
On February 3, 1997, the plaintiffs filed a Notice of Appeal of the Chancery
Court's order to the Appellate Court of Illinois. Oral arguments before the
Appellate Court were held on March 18, 1998. On November 12, 1998, the
Appellate Court issued an opinion affirming the Chancery Court's dismissal of
the case. On December 3, 1998, the plaintiffs filed a notice of intent to
appeal the Appellate Court's ruling to the Illinois Supreme Court.
<PAGE>
The Balcor Defendants intend to vigorously contest this action. No class has
been certified as of this date. The Registrant believes it has meritorious
defenses to contest the claims. It is not determinable at this time how the
outcome of this action will impact the remaining cash reserves of the
Registrant.
Item 4. Submission of Matters to a Vote of Security Holders
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No matters were submitted to a vote of the Limited Partners of the Registrant
during 1998.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
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Matters
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There has not been an established public market for Limited Partnership
Interests and it is not anticipated that one will develop. For information
regarding distributions, see "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources".
As of December 31, 1998, the number of record holders of Limited Partnership
Interests of the Registrant was 6,122.
Item 6. Selected Financial Data
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Year ended December 31,
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1998 1997 1996 1995 1994
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Total income $2,310,008 $4,003,399 $5,327,280 $5,191,721 $5,088,403
Provision for
investment
property
writedown 3,400,000 850,000 4,782,000 None None
(Loss) income
before
participation
in income of
joint venture
with affiliates
and (loss) gain
on sales of
properties (3,412,728) 341,078 (3,304,603) 1,277,771 1,124,692
Net (loss) income (3,539,428) 4,559,177 (2,849,269) 905,702 1,144,130
Net (loss) income
per Limited
Partnership
Interest-Basic
and Diluted (18.10) 23.58 (16.54) 3.82 5.14
Total assets 5,590,314 9,931,923 21,923,945 26,733,957 28,010,591
Distributions
per Taxable
Limited
Partnership
Interest None 88.19(A) 9.16 11.37 11.28
Distributions
per Tax-exempt
Limited Partnership
Interest None 88.10(A) 9.04 9.76 10.09
<PAGE>
(A) These amounts include distributions of original capital of $81.32 per
Taxable and Tax-exempt Limited Partnership Interest.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
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of Operations
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Summary of Operations
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Balcor Equity Pension Investors - IV A Real Estate Limited Partnership (the
"Partnership") recognized significant provisions for investment property
writedown related to declines in the fair value of the Evanston Plaza Shopping
Center during 1998 and 1996 and a smaller provision during 1997. During 1997,
the Partnership sold the Gleneagles Apartments and recognized a gain in
connection with this sale. During 1996, the Partnership recognized its share of
the gain on the sale of the 45 West 45th Street Office Building. Primarily as a
result of these events, the Partnership recognized net losses during 1998 and
1996 and recognized net income during 1997. Further discussion of the
Partnership's operations is summarized below.
1998 Compared to 1997
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The Partnership sold the Gleneagles Apartments in May 1997 and recognized a
gain of $4,218,099 in connection with the sale. Primarily as a result of this
sale, rental income, depreciation, property operating expense, real estate
taxes and property management fees decreased during 1998 as compared to 1997.
The Partnership also sold the Evanston Plaza Shopping Center in December 1998
and recognized a loss of $126,700 in connection with the sale.
In addition to the decrease in rental income due to the sale of the Gleneagles
Apartments, rental income also decreased during 1998 due to a decrease in
average occupancy levels at the Evanston Plaza Shopping Center.
As a result of lower real estate tax reimbursements from tenants at the
Evanston Plaza Shopping Center primarily due to lower occupancy and a decline
in real estate taxes due to a reduction in the assessed value of the property,
service income decreased during 1998 as compared to 1997.
Higher average cash balances were available for investment in 1997 primarily
due to the proceeds received in connection with the May 1997 sale of the
Gleneagles Apartments prior to distribution to Limited Partners in July 1997.
This resulted in a decrease in interest income on short-term investments during
1998 as compared to 1997.
In April 1997, the Partnership entered into a settlement agreement with the
manufacturer of the roof at the Evanston Plaza Shopping Center relating to
alleged defects. The Partnership received $276,068 in satisfaction of its
claims. The amount received was recognized by the Partnership as settlement
income for financial statement purposes.
The Partnership recognized other income during 1997 primarily in connection
with partial refunds of prior years' insurance premiums relating to the
Partnership's properties.
<PAGE>
In addition to the decrease in depreciation expense due to the sale of the
Gleneagles Apartments, depreciation expense also decreased during 1998 due to
the writedowns of the basis of the Evanston Plaza Shopping Center as a result
of the declines in the fair value of the property.
In addition to the decrease in real estate taxes due to the sale of the
Gleneagles Apartments, real estate taxes also decreased during 1998 due to a
reduction in the assessed value of the Evanston Plaza Shopping Center.
Primarily as a result of legal and environmental consulting expenses incurred
during 1998 related to environmental issues at the Evanston Plaza Shopping
Center and the sale of the property, administrative expenses increased in 1998
as compared to 1997.
Provisions are charged to income when the General Partner believes an
impairment has occurred to the value of its property. Determinations of fair
value are made periodically on the basis of assessments of property operations
and the property's estimated sales price less closing costs. Determinations of
fair value represent estimations based on many variables which affect the value
of real estate, including economic and demographic conditions. During 1998, the
Partnership recognized a provision for investment property writedown of
$3,400,000 to provide for a change in the estimate of the fair value of the
Evanston Plaza Shopping Center. The decline in value was attributable to the
purchase price reduction granted to the purchaser of the property due primarily
to estimated expenditures that will be necessary to correct environmental
issues at the property. Additionally, during 1997, the Partnership recognized a
provision of $850,000 that was primarily attributable to a decline in occupancy
at the property and an overall softness in the retail market.
1997 Compared to 1996
- ---------------------
The Partnership sold the Gleneagles Apartments in May 1997 and as a result,
rental income, property operating expense, real estate taxes and property
management fees decreased during 1997 as compared to 1996.
Due to lower real estate tax reimbursements from tenants at the Evanston Plaza
Shopping Center and the sale of the Gleneagles Apartments in 1997, service
income decreased during 1997 as compared to 1996.
Due to higher average cash balances as a result of the proceeds received in
connection with the sale of the Gleneagles Apartments prior to distribution to
Limited Partners in July 1997, interest income on short-term investments
increased during 1997 as compared to 1996.
Depreciation expense decreased during 1997 due to the sale of the Gleneagles
Apartments and due to the decline in the fair value of the Evanston Plaza
Shopping Center in 1996 which resulted in a writedown of the basis of the
property.
The Partnership incurred higher legal fees during 1997 relating to the sale of
Gleneagles Apartments and the pending sale of the Evanston Plaza Shopping
<PAGE>
Center. The Partnership also incurred higher accounting fees. These increases
were partially offset by a decrease in professional fees which were incurred
during 1996 in connection with a response to a tender offer. As a result,
administrative expense increased during 1997 as compared to 1996.
During 1996, the Partnership recognized a provision for investment property
writedown of $4,782,000 to provide for a change in the estimate of the fair
value of the Evanston Plaza Shopping Center. The decline in value was
attributable to a decline in occupancy at the property, an overall softness in
the retail market and certain tenant bankruptcies.
The 45 West 45th Street Office Building, in which the Partnership held a
minority joint venture interest, was sold during November 1996. As a result,
participation in income of joint venture with affiliates ceased during 1996.
Liquidity and Capital Resources
- -------------------------------
The cash position of the Partnership increased by approximately $2,493,000 as
of December 31, 1998, when compared to December 31, 1997 primarily due to the
net proceeds received from the sale of the Evanston Plaza Shopping Center. The
Partnership used cash of approximately $466,000 for its operating activities to
pay administrative expenses, including legal and environmental consulting
expenses related to environmental issues at the Evanston Plaza Shopping Center
and the sale of the property, which was partially offset by interest income
earned on short-term investments and cash flow generated from operations at the
Evanston Plaza Shopping Center. Investing activities consisted of the net
proceeds received in connection with the sale of the Evanston Plaza Shopping
Center totaling approximately $3,005,000 less the funding of an escrow in
connection with the sale of $46,000. In February 1999, the Partnership made a
distribution to Limited Partners of approximately $3,805,000, as discussed
below.
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. In December 1998, the Partnership sold the Evanston Plaza Shopping
Center, its final real estate investment. The Partnership has retained a
portion of the cash from the sale of its real estate investments to satisfy
obligations of the Partnership as well as to establish a reserve for
contingencies. The timing of the termination of the Partnership and final
distribution of cash will depend upon the nature and extent of liabilities and
contingencies which exist or may arise. Such contingencies may include legal
and other fees and costs stemming from litigation involving the Partnership
including, but not limited to, the lawsuit discussed in "Item 3. Legal
Proceedings" and potential costs to be incurred if the Partnership initiates
legal proceedings against third parties relating to the environmental issues at
the Evanston Plaza Shopping Center described in "Item 1. Other Information"
above. Due to these matters, the Partnership will not be dissolved and reserves
will be held by the Partnership until the conclusion of all contingencies.
There can be no assurances as to the time frame for conclusion of these
contingencies.
In December 1998, the Partnership sold the Evanston Plaza Shopping Center in an
all cash sale for $3,500,000. In connection with the sale, the purchaser
<PAGE>
received credits totaling $341,681 related to leasing commissions and roof
repairs. From the proceeds of the sale, the Partnership paid $153,755 in
selling costs. In connection with the sale, $517,651 related to tenant
reimbursements was placed in escrow at closing and will be held in escrow until
such time as payment of these reimbursements are received from the tenants. The
Partnership will recognize income as amounts are received from the escrow. In
addition, $46,000 was being held in escrow until a lien waiver was received
from the former property management company regarding the payment of its fees.
The funds were released in full in March 1999. The available proceeds from the
sale were distributed to the Limited Partners in February 1999. The purchaser
of the property has also agreed to indemnify the Partnership for the first
$3,700,000 of costs incurred in connection with the remediation of the property,
including amounts expended by the purchaser for those items covered in the
remedial action plan. See Note 10 of Notes to Financial Statements for
additional information.
The Partnership made distributions totaling $88.19 per Taxable Interest and
$88.10 per Tax-exempt Interest during 1997 and $9.16 per Taxable Interest and
$9.04 Tax-exempt Interest during 1996. No distributions were made to Limited
Partners during 1998. Distributions to Taxable Limited Partners were comprised
of $6.87 of Net Cash Receipts and $81.32 of Net Cash Proceeds in 1997.
Distributions to Tax-exempt Limited Partners were comprised of $6.78 of Net
Cash Receipts and $81.32 of Net Cash Proceeds in 1997. Distributions to Taxable
and Tax-exempt Limited Partners were comprised solely of Net Cash Receipts in
1996.
It should be noted that distributions of Net Cash Receipts to Taxable Limited
Partners and Tax-exempt Limited Partners are computed by different formulas as
set forth in the Partnership Agreement; therefore, the amount of distributions
to Taxable Limited Partners when compared to the amount of distributions to
Tax-exempt Limited Partners fluctuated from quarter to quarter.
In February 1999, the Partnership made a distribution to the holders of Limited
Partnership Interests of $3,804,852 ($20.54 per Taxable Interest and $20.51 per
Tax-exempt Interest). This amount represents a distribution primarily from
available Net Cash Proceeds from the sale of the Evanston Plaza Shopping Center
($18.08 per Taxable and Tax-exempt Interest) and available Net Cash Receipts
reserves ($2.46 per Taxable Interest and $2.43 per Tax-exempt Interest). The
Partnership also paid $37,561 to the General Partner as its distributive share
of the Net Cash Receipts distributed and made a contribution to the Repurchase
Fund of $12,520. Including the February 1999 distribution, Limited Partners
have received cumulative distributions of $199.82 per $250 Taxable Interest, of
which $100.17 represents Net Cash Receipts and $99.65 represents Net Cash
Proceeds, and $197.61 per $250 Tax-exempt Interest, of which $97.96 represents
Net Cash Receipts and $99.65 represents Net Cash Proceeds. No additional
distributions are anticipated to be made prior to the termination of the
Partnership. However, after paying final partnership expenses, any remaining
cash reserves will be distributed in accordance with the Partnership Agreement.
Amounts allocated to the Repurchase Fund will also be distributed at that time.
Limited Partners will not recover all of their original investment.
In February 1997, the Partnership discontinued the repurchase of Interests from
Limited Partners. As of December 31, 1998, there were 3,192 Interests and cash
of $320,854 in the Repurchase Fund.
The Partnership has sold its remaining real property investment and has
distributed a majority of the proceeds from this sale to Limited Partners in
<PAGE>
February 1999. Since the Partnership no longer has any operating assets, the
number of computer systems and programs necessary to operate the Partnership
has been significantly reduced. The Partnership relies on third party vendors
to perform most of its functions and has implemented a plan to determine the
Year 2000 compliance status of these key vendors. The Partnership is within its
timeline for having these plans completed prior to the year 2000.
The Partnership's plan to determine the Year 2000 compliance status of its key
vendors involves the solicitation of information from these vendors through the
use of surveys, follow-up discussions and review of data where needed. The
Partnership has sent out surveys to these vendors and received back a majority
of these surveys. While the Partnership cannot guarantee Year 2000 compliance
by its key vendors, and in many cases will be relying on statements from these
vendors without independent verification, preliminary surveys indicate that the
key vendors performing services for the Partnership are aware of the issues and
are working on a solution to achieve compliance before the year 2000. The
Partnership is in the process of developing a contingency plan in the event any
of its key vendors are not Year 2000 compliant prior to the year 2000. As part
of its contingency plan, the Partnership will identify replacement vendors in
the event that current vendors are not substantially Year 2000 compliant by
June 30, 1999. The Partnership does not believe that failure by any of its key
vendors to be Year 2000 compliant by the year 2000 would have a material effect
on the business, financial position or results of operations of the
Partnership.
Certain statements in this report constitute "forward looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended. These
statements may include statements regarding income or losses as well as
assumptions relating to the foregoing.
The forward-looking statements made by the Partnership are subject to known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Partnership to differ from any
future results, performance or achievements expressed or implied by the
forward-looking statements.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
The supplemental financial information specified by Item 305 of Regulation S-K
is not applicable.
Item 8. Financial Statements and Supplementary Data
- ---------------------------------------------------
See Index to Financial Statements and Financial Statement Schedule in this
Form 10-K.
The supplemental financial information specified by Item 302 of Regulation S-K
is not applicable.
The net effect of the differences between the financial statements and the tax
returns is summarized as follows:
<PAGE>
December 31, 1998 December 31, 1997
----------------------- -------------------------
Financial Tax Financial Tax
Statements Returns Statements Returns
------------- ------------ ------------ -------------
Total assets $5,590,314 $12,932,709 $9,931,923 $26,479,440
Partners' capital
(deficit) accounts:
General Partner (220,348) (557,293) (38,628) 257,693
Limited Partners 5,531,879 13,211,127 8,889,587 25,152,735
Net (loss) income:
General Partner (181,720) (814,986) 185,703 134,165
Limited Partners (3,357,708) (11,941,608) 4,373,474 4,014,121
Per Limited Part-
nership Interest (18.10)(A) (B) 23.58(A) 21.64
(A) Amount represents basic and diluted net (loss) income per Limited
Partnership Interest.
(B) The net (loss) income is ($63.16) per Tax-exempt Interest and ($75.84) per
Taxable Interest for 1998 and $23.58 per Tax-exempt Interest and Taxable
Interest for 1997.
Item 9. 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>
PART III
Item 10. Directors and Executive Officers of the Registrant
- -----------------------------------------------------------
(a) Neither the Registrant nor Balcor Equity Partners-IV, its General Partner,
has a Board of Directors.
(b, c & e) The names, ages and business experience of the executive officers
and significant employees of the General Partner of the Registrant are as
follows:
TITLE OFFICERS
Chairman, President and Chief Thomas E. Meador
Executive Officer
Senior Vice President Alexander J. Darragh
Senior Managing Director, Chief Jayne A. Kosik
Financial Officer, Treasurer
and Assistant Secretary
Thomas E. Meador (age 51) joined Balcor in July 1979. He is Chairman,
President and Chief Executive Officer and has responsibility for all ongoing
day-to-day activities at Balcor. He is a member of the board of directors of
The Balcor Company. He is also a Senior Vice President of American Express
Company and is responsible for its real estate operations worldwide. Prior to
joining Balcor, Mr. Meador was employed at the Harris Trust and Savings Bank in
the commercial real estate division where he was involved in various lending
activities. Mr. Meador received his M.B.A. degree from the Indiana University
Graduate School of Business.
Mr. Meador is on the Board of Directors of Grubb & Ellis Company, a publicly
traded commercial real estate firm. Mr. Meador was elected to the Board of
Grubb & Ellis Company in May 1998. Mr. Meador is also a director of AMLI
Commercial Properties Trust, a private real estate investment trust that owns
office and industrial buildings in the Chicago, Illinois area. Mr. Meador was
elected to the Board of AMLI Commercial Properties Trust in August 1998.
Alexander J. Darragh (age 44) joined Balcor in September 1988 and is
responsible for real estate advisory services for Balcor and American Express
Company. Mr. Darragh received masters' degrees in Urban Geography from Queen's
University and in Urban Planning from Northwestern University.
Jayne A. Kosik (age 41) joined Balcor in August 1982 and, as Chief Financial
Officer, is responsible for Balcor's financial, human resources and treasury
functions. Ms. Kosik is also a member of the board of directors of The Balcor
Company. From June 1989 until October 1996, Ms. Kosik had supervisory
responsibility for accounting functions relating to Balcor's public and private
partnerships. She is also Treasurer and a Senior Managing Director of The
Balcor Company. Ms. Kosik is a Certified Public Accountant.
(d) There is no family relationship between any of the foregoing officers.
<PAGE>
(f) None of the foregoing officers or employees are currently involved in any
material legal proceedings nor were any such proceedings terminated during the
fourth quarter of 1998.
Item 11. Executive Compensation
- -------------------------------
The Registrant has not paid and does not propose to pay any remuneration to the
executive officers and directors of the General Partner. The executive officers
receive compensation from The Balcor Company (but not from the Registrant) for
services performed for various affiliated entities, which may include services
performed for the Registrant. However, the General Partner believes that any
such compensation attributable to services performed for the Registrant is
immaterial to the Registrant. See Note 9 of Notes to Financial Statements for
the information relating to transactions with affiliates.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -----------------------------------------------------------------------
(a) The following entity is the sole Limited Partner which owns beneficially
more than 5% of the outstanding Limited Partnership Interests of the
Registrant:
Name and Amount and
Address of Nature of Percent
Beneficial Beneficial of
Title of Class Owner Ownership Class
-------------- ----------- ----------- ---------
Limited Engineers Joint 12,780 Limited 6.9%
Partnership Pension Fund Partnership
Interests Syracuse, New York Interests
(b) Balcor Equity Partners-IV and its officers and partners own no interests in
the Registrant as a group. The Repurchase Fund, however, owns the following
Limited Partnership Interests of the Registrant:
Amount
Beneficially
Title of Class Owned Percent of Class
-------------- --------------- ----------------
Limited 3,192 Interests 1.72%
Partnership
Interests
Relatives of the officers and affiliates of the partners of the General Partner
do not own any Interests.
In addition, Balcor LP Corp., an affiliate of the General Partner, holds title
to 36 Limited Partnership Interests in the Partnership due exclusively to
instances in which Limited Partners abandoned title to their Limited
Partnership Interests. Balcor LP Corp. is a nominee holder only of such
<PAGE>
Interests and has disclaimed any economic or beneficial ownership in said
Interests. All distributions of cash payable with respect to such Interests
held by Balcor LP Corp. are returned to the Partnership for distribution to
other Limited Partners in accordance with the Partnership Agreement.
(c) The Registrant is not aware of any arrangements, the operation of which may
result in a change of control of the Registrant.
Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------
(a & b) See Note 4 of Notes to Financial Statements for information relating to
the Partnership Agreement and the allocation of distributions and profits and
losses.
See Note 9 of Notes to Financial Statements for additional information relating
to transactions with affiliates.
(c) No management person is indebted to the Registrant.
(d) The Registrant has no outstanding agreements with any promoters.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K
- ------------------------------------------------------------------------
(a)
(1 & 2) See Index to Financial Statements in this Form 10-K.
(3) Exhibits:
(3) The Amended and Restated Agreement and Certificate of Limited Partnership
of Balcor Equity Pension Investors-IV A Real Estate Limited Partnership,
previously filed as Exhibit 3 to Amendment No. 1 dated November 28, 1986 to the
Registrant's Registration Statement on Form S-11 (Registration No. 33-7133), is
hereby incorporated herein by reference.
(4) Form of Subscription Agreement set forth as Exhibit 4.1 to Amendment No. 1
to Registrant's Registration Statement on Form S-11 dated November 28, 1986
(Registration No. 33-7133) and Form of Confirmation regarding Interests in the
Registrant set forth as Exhibit 4.2 to the Registrant's Report on Form 10-Q for
the quarter ended June 30, 1992 (Commission File No. 0-15648) are incorporated
herein by reference.
(10) Material Contracts:
(i) Agreement of Sale and attachment thereto relating to the sale of Evanston
Plaza Shopping Center, Evanston, Illinois, previously filed as Exhibit (2) to
the Registrant's Current Report on Form 8-K dated December 8, 1997 is
incorporated herein by reference.
(ii) Extension letter dated February 24, 1998 relating to the sale of Evanston
Plaza Shopping Center, Evanston, Illinois, previously filed as Exhibit
(10)(b)(ii) to the Registrant's Report on Form 10-K for the year ended December
31, 1997 is incorporated herein by reference.
(iii) Extension letter dated March 24, 1998 relating to the sale of Evanston
Plaza Shopping Center, Evanston, Illinois, previously filed as Exhibit
(10)(b)(iii) to the Registrant's Report on Form 10-K for the year ended
December 31, 1997 is incorporated herein by reference.
(iv) First Amendment to Agreement of Sale dated May 25, 1998 relating to the
sale of the Evanston Plaza Shopping Center, Evanston, Illinois, previously
filed as Exhibit (10)(b)(iv) to the Registrant's Report on Form 10-Q for the
quarter ended June 30, 1998, is incorporated herein by reference.
(v) Second Amendment to Agreement of Sale dated July 21, 1998 relating to the
sale of the Evanston Plaza Shopping Center, Evanston, Illinois, previously
filed as Exhibit (10)(b)(v) to the Registrant's Report on Form 10-Q for the
quarter ended June 30, 1998 is incorporated herein by reference.
(vi) Third Amendment to Agreement of Sale dated August 28, 1998 relating to the
sale of the Evanston Plaza Shopping Center, Evanston, Illinois, previously
filed as Exhibit 2(a) to the Registrant's Current Report on Form 8-K dated
August 28, 1998 is incorporated herein by reference.
<PAGE>
(vii) Fourth Amendment to Agreement of Sale dated September 10, 1998 relating
to the sale of the Evanston Plaza Shopping Center, Evanston, Illinois,
previously filed as Exhibit 2(b) to the Registrant's Current Report on Form 8-K
dated August 28, 1998 is incorporated herein by reference.
(viii) Environmental Remediation Agreement relating to the sale of the Evanston
Plaza Shopping Center, Evanston, Illinois, previously filed as Exhibit 2(c) to
the Registrant's Current Report on Form 8-K dated August 28, 1998 is
incorporated herein by reference.
(ix) Fifth Amendment to Agreement of Sale dated October 30, 1998 relating to
the sale of the Evanston Plaza Shopping Center, Evanston, Illinois, previously
filed as Exhibit (10)(b)(ix) to the Registrant's Report on Form 10-Q for the
quarter ended September 30, 1998 is incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for 1998 is attached hereto.
(b) Reports on Form 8-K: No Reports on Form 8-K were filed during the quarter
ended December 31, 1998.
(c) Exhibits: See Item 14(a)(3) above.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of l934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
BALCOR EQUITY PENSION INVESTORS-IV
A REAL ESTATE LIMITED PARTNERSHIP
By: /s/Jayne A. Kosik
------------------------------
Jayne A. Kosik
Senior Managing Director and Chief
Financial Officer (Principal Accounting
and Financial Officer) of Balcor
Equity Partners-IV, the General Partner
Date: March 31, 1999
--------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- ---------------------- ------------------------------------------------
President and Chief Executive
Officer (Principal Executive
Officer) of Balcor Equity
Partners-IV, the General Partner
/s/ Thomas E. Meador March 31, 1999
- -------------------- --------------
Thomas E. Meador
Senior Managing Director and Chief
Financial Officer (Principal
Accounting and Financial Officer) of
Balcor Equity Partners-IV,
the General Partner
/s/ Jayne A. Kosik March 31, 1999
- ------------------ --------------
Jayne A. Kosik
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants
Financial Statements:
Balance Sheets, December 31, 1998 and 1997
Statements of Partners' Capital, for the years ended December 31, 1998, 1997
and 1996
Statements of Income and Expenses, for the years ended December 31, 1998, 1997
and 1996
Statements of Cash Flows, for the years ended December 31, 1998, 1997 and 1996
Notes to Financial Statements
Financial Statement Schedules, are omitted for the reason that they are
inapplicable or equivalent information has been included elsewhere herein.
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Balcor Equity Pension Investors-IV:
In our opinion, the accompanying balance sheets and the related statements of
partners' capital, of income and expenses and of cash flows present fairly, in
all material respects, the financial position of Balcor Equity Pension
Investors-IV A Real Estate Limited Partnership (An Illinois Limited
Partnership, the "Partnership") at December 31, 1998 and 1997, and the results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the
Partnership's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
As described in Note 2 to the financial statements, the partnership agreement
provides for the dissolution of the Partnership upon the disposition of all its
real estate interests. As of December 31, 1998, the Partnership no longer has
an ownership interest in any real estate investment. Upon resolution of the
litigation described in Note 12 to the financial statements, the Partnership
intends to cease operations and dissolve.
PricewaterhouseCoopers LLP
Chicago, Illinois
March 24, 1999
<PAGE>
BALCOR EQUITY PENSION INVESTORS-IV
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEETS
December 31, 1998 and 1997
ASSETS
1998 1997
------------- -------------
Cash and cash equivalents $ 5,525,151 $ 3,032,525
Accounts and accrued interest receivable 19,163 186,505
Escrow deposits - restricted 46,000
Deferred expenses, net of accumulated
amortization of $20,955 in 1997 34,929
------------- -------------
5,590,314 3,253,959
------------- -------------
Investment in real estate:
Land 3,164,353
Buildings and improvements 8,802,135
-------------
11,966,488
Less accumulated depreciation 5,288,524
-------------
Investment in real estate, net of
accumulated depreciation 6,677,964
------------- -------------
$ 5,590,314 $ 9,931,923
============= =============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 193,118 $ 37,205
Due to affiliates 85,665 26,497
Accrued real estate taxes 1,007,379
Security deposits 9,883
------------- -------------
Total liabilities 278,783 1,080,964
------------- -------------
Commitments and contingencies
Limited Partners' capital (185,486
Interests issued and outstanding) 5,531,879 8,889,587
General Partner's deficit (220,348) (38,628)
------------- -------------
Total partners' capital 5,311,531 8,850,959
------------- -------------
$ 5,590,314 $ 9,931,923
============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS-IV
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
for the years ended December 31, 1998, 1997 and 1996
Partners' Capital (Deficit) Accounts
------------- ------------- -------------
General Limited
Total Partner Partners
------------- ------------- -------------
Balance at December 31, 1995 $ 25,489,361 $ (116,554) $ 25,605,915
Cash distributions to:
Limited Partners (A) (1,678,932) (1,678,932)
General Partner (186,546) (186,546)
Net (loss) income for the year
ended December 31, 1996 (2,849,269) 218,680 (3,067,949)
------------- ------------- -------------
Balance at December 31, 1996 20,774,614 (84,420) 20,859,034
Cash distributions to:
Limited Partners (A) (16,342,921) (16,342,921)
General Partner (139,911) (139,911)
Net income for the year
ended December 31, 1997 4,559,177 185,703 4,373,474
------------- ------------- -------------
Balance at December 31, 1997 8,850,959 (38,628) 8,889,587
Net loss for the year
ended December 31, 1998 (3,539,428) (181,720) (3,357,708)
------------- ------------- -------------
Balance at December 31, 1998 $ 5,311,531 $ (220,348) $ 5,531,879
============= ============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS-IV
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
for the years ended December 31, 1998, 1997 and 1996
(Continued)
(A) Summary of cash distributions paid per Interest:
1998 1997 1996
------------- ------------- -------------
Taxable
- -----------------
First Quarter None $ 11.11 $ 2.29
Second Quarter None 2.29 2.29
Third Quarter None 74.79 2.29
Fourth Quarter None None 2.29
Tax-exempt
- -----------------
First Quarter None 11.08 2.26
Second Quarter None 2.26 2.26
Third Quarter None 74.76 2.26
Fourth Quarter None None 2.26
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS-IV
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES
for the years ended December 31, 1998, 1997 and 1996
1998 1997 1996
------------- ------------- -------------
Income:
Rental $ 1,286,167 $ 2,370,636 $ 3,953,370
Service 845,860 1,033,553 1,191,949
Interest on short-term
investments 177,981 313,116 181,961
Settlement income 276,068
Other income 10,026
------------- ------------- -------------
Total income 2,310,008 4,003,399 5,327,280
------------- ------------- -------------
Expenses:
Depreciation 146,700 360,128 808,049
Property operating 266,450 673,464 1,134,989
Real estate taxes 777,100 1,106,624 1,216,855
Property management fees 110,607 164,345 246,488
Administrative 1,021,879 507,760 443,502
Provision for investment
property writedown 3,400,000 850,000 4,782,000
------------- ------------- -------------
Total expenses 5,722,736 3,662,321 8,631,883
------------- ------------- -------------
(Loss) income before
participation in income of
joint venture with affiliates
and (loss) gain on sales of
properties (3,412,728) 341,078 (3,304,603)
Participation in income of joint
venture with affiliates 455,334
(Loss) gain on sales of
properties (126,700) 4,218,099
------------- ------------- -------------
Net (loss) income $ (3,539,428) $ 4,559,177 $ (2,849,269)
============= ============= =============
Net (loss) income allocated to
General Partner $ (181,720) $ 185,703 $ 218,680
============= ============= =============
Net (loss) income allocated to
Limited Partners $ (3,357,708) $ 4,373,474 $ (3,067,949)
============= ============= =============
Net (loss) income per Limited
Partnership Interest (185,486
issued and outstanding)
- Basic and Diluted $ (18.10) $ 23.58 $ (16.54)
============= ============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS-IV
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1998, 1997 and 1996
1998 1997 1996
------------- ------------- -------------
Operating activities:
Net (loss) income $ (3,539,428) $ 4,559,177 $ (2,849,269)
Adjustments to reconcile net
(loss) income to net cash
(used in) or provided
by operating activities:
Participation in income of
joint venture with
affiliates (455,334)
Loss (gain) on sales of
properties 126,700 (4,218,099)
Depreciation of properties 146,700 360,128 808,049
Amortization of deferred
expenses 34,929 5,588 5,588
Provision for investment
property writedown 3,400,000 850,000 4,782,000
Net change in:
Accounts and accrued
interest receivable 167,342 (47,224) (51,651)
Prepaid expenses 38,439 (2,508)
Accounts payable 155,913 5,502 (74,080)
Due to affiliates 59,168 (32,680) 42,891
Accrued liabilities (1,007,379) 11,811 (38,783)
Security deposits (9,883) (53,000) (25,293)
------------- ------------- -------------
Net cash (used in) or provided
by operating activities (465,938) 1,479,642 2,141,610
------------- ------------- -------------
Investing activities:
Proceeds from sale of
properties 3,158,319 13,300,000
Payment of selling costs (153,755) (525,090)
Funding of escrow in connection
with the sale of property (46,000)
Capital contribution to joint
venture - affiliates (15,934)
Distributions from joint
venture - affiliates 76,101 1,534,680
------------- ------------- -------------
Net cash provided by investing
activities 2,958,564 12,851,011 1,518,746
------------- ------------- -------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS-IV
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1998, 1997 and 1996
(Continued)
1998 1997 1996
------------- ------------- -------------
Financing activities:
Distributions to Limited
Partners $(16,342,921) $ (1,678,932)
Distributions to General
Partner (139,911) (186,546)
------------- -------------
Cash used in financing
activities (16,482,832) (1,865,478)
------------- -------------
Net change in cash and cash
equivalents 2,492,626 (2,152,179) 1,794,878
Cash and cash equivalents at
beginning of year 3,032,525 5,184,704 3,389,826
------------- ------------- -------------
Cash and cash equivalents at
end of year $ 5,525,151 $ 3,032,525 $ 5,184,704
============= ============= =============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR EQUITY PENSION INVESTORS-IV
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Nature of the Partnership's Business:
Balcor Equity Pension Investors-IV A Real Estate Limited Partnership (the
"Partnership") has retained cash reserves from the sale of its real estate
investments for contingencies which exist or may arise. The Partnership's
operations currently consist of interest income earned on short-term
investments and the payment of administrative expenses.
2. Partnership Termination:
The Partnership Agreement provides for the dissolution of the Partnership upon
the occurrence of certain events, including the disposition of all interests in
real estate. In December 1998, the Partnership sold the Evanston Plaza Shopping
Center, its final real estate investment. The Partnership has retained a
portion of the cash from the sale of its real estate investments to satisfy
obligations of the Partnership as well as to establish a reserve for
contingencies. The timing of the termination of the Partnership and final
distribution of cash will depend upon the nature and extent of liabilities and
contingencies which exist or may arise. Such contingencies may include legal
and other fees and costs stemming from litigation involving the Partnership
including, but not limited to, the lawsuit discussed in Note 12 of Notes to
Financial Statements and potential costs to be incurred if the Partnership
initiates legal proceedings against third parties relating to the environmental
issues at the Evanston Plaza Shopping Center. Due to these matters, the
Partnership will not be dissolved and reserves will be held by the Partnership
until the conclusion of all contingencies. There can be no assurances as to the
time frame for conclusion of these contingencies.
3. Accounting Policies:
(a) The preparation of the financial statements in conformity with generally
accepted accounting principles requires the General Partner to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could vary from those estimates.
(b) Depreciation expense was computed using the straight-line methods. Rates
used in the determination of depreciation were based upon the following
estimated useful lives:
Buildings and improvements 25 to 30 years
Furniture and fixtures 5 years
Maintenance and repairs were charged to expense when incurred. Expenditures for
improvements were charged to the related asset account.
<PAGE>
As properties were sold, the related costs and accumulated depreciation were
removed from the respective accounts. Any gain or loss on disposition was
recognized in accordance with generally accepted accounting principles.
(c) The Partnership recorded its investment in real estate at the lower of cost
or fair value, and periodically assessed, but not less than on an annual basis,
possible impairment to the value of its properties. The General Partner
estimated the fair value of its properties based on the current sales price
less estimated closing costs. In the event the General Partner determined an
impairment in value had occurred, and the carrying amount of the real estate
asset would not be recovered, a provision was recorded to reduce the carrying
basis of the property to its estimated fair value. The General Partner
considers the method referred to above to result in a reasonable measurement of
a property's fair value, unless other factors affecting the property's value
indicated otherwise.
(d) Investment in joint venture with affiliates represented the Partnership's
15.22% interest, under the equity method of accounting, in a joint venture with
affiliated partnerships. Under the equity method of accounting, the Partnership
recorded its initial investment at cost and adjusted its investment account for
additional capital contributions, distributions and its share of joint venture
income or loss.
(e) Deferred expenses consisted of leasing commissions which were amortized
over the life of each respective lease. Upon sale of the property, the
remaining unamortized balance was written off to amortization expense.
(f) Revenue is recognized on an accrual basis in accordance with generally
accepted accounting principles. Income from operating leases with significant
abatements and/or scheduled rent increases was recognized on a straight line
basis over the respective lease term. Service income included reimbursements
for operating costs such as real estate taxes, maintenance and insurance and
was recognized as revenue in the period the applicable costs were incurred.
(g) The Partnership calculates the fair value of its financial instruments
based on estimates using present value techniques. The Partnership includes
this additional information in the notes to the financial statements when the
fair value is different than the carrying value of those financial instruments.
When the fair value reasonably approximates the carrying value, no additional
disclosure is made.
(h) Cash and cash equivalents include all unrestricted, highly liquid
investments with an original maturity of three months or less. Cash is held or
invested primarily in one financial institution.
(i) The Partnership is not liable for Federal income taxes and each partner
recognizes his proportionate share of the Partnership income or loss in his tax
return; therefore, no provision for income taxes is made in the financial
statements of the Partnership.
(j) For financial statement purposes, prior to 1998, the partners were
allocated income and losses in accordance with the provisions in the
Partnership Agreement. In order for the capital account balances to more
<PAGE>
accurately reflect the partners' remaining economic interests in the
Partnership, the (loss) income allocations have been adjusted.
(k) Statement of Financial Accounting Standards, No. 128, "Earnings per Share"
was adopted by the Partnership effective for the year-ended December 31, 1997
and has been applied to the prior earnings period presented in the financial
statements. Since the Partnership has no dilutive securities, there is no
difference between basic and diluted net income (loss) per Limited Partnership
Interest.
(l) Certain reclassifications of prior years information were made to conform
to the 1998 presentation.
4. Partnership Agreement:
The Partnership was organized on June 20, 1986. The Partnership Agreement
provided for the admission of Limited Partners through the sale of up to
1,000,000 Limited Partnership Interests at $250 per Interest, 185,486 of which
were sold through December 14, 1987, the termination date of the offering.
Pursuant to the terms set forth in the Partnership Agreement, "Operating Income
from Real Properties" of the Partnership is allocated 10% to the General
Partner and 90% to the Limited Partners; "Operating Losses from Real
Properties" and certain other components is allocated 1% to the General Partner
and 99% to the Limited Partners; and "Other 'Operating Income' or 'Operating
Losses'" is allocated 10% to the General Partner and 90% to the Limited
Partners. For financial statement purposes, prior to 1998, the partners were
allocated income and losses in accordance with the provisions in the
Partnership Agreement. In order for the capital account balances to more
accurately reflect the partners' remaining economic interests in the
Partnership, the (loss) income allocations have been adjusted.
The Partnership Agreement provides for different allocations of profits and
losses and cash distributions to Limited Partners depending on whether the
investor originally acquiring the Limited Partnership interest was a taxable or
tax-exempt entity.
The Partnership Agreement provides that ninety percent of Net Cash Receipts
available for distribution will be distributed to Limited Partners. To the
extent possible, Taxable Limited Partners received an allocation of such
available Net Cash Receipts generated by the operation of the Partnership's two
properties in the same manner as if their investment in the Partnership had
been attributable solely to the properties. Taxable Limited Partners were to
commence sharing in such available Net Cash Receipts generated by the
Partnership's investment in the 45 West 45th Street Office Building at such
time as the Taxable Limited Partners' investment in the Partnership was not
then solely attributable to the two properties (which time was originally
anticipated to be upon the sale of both properties). The Tax-exempt Limited
Partners were allocated all other Net Cash Receipts to be allocated to the
Limited Partners, consisting of (i) 100% of such available Net Cash Receipts
that had been generated by the investment in the 45 West 45th Street Office
Building (until such time as both of the properties were sold, as described
<PAGE>
above) plus (ii) the Net Cash Receipts generated by the operation of the two
properties, to the extent not allocated to the Taxable Limited Partners as
described above. Of the remaining 10% of Net Cash Receipts, 7 1/2% was paid to
the General Partner as its distributive share from Partnership operations and
an additional 2 1/2% was paid to the General Partner for allocation to the
Repurchase Fund.
At the sole discretion of the General Partner and subject to certain
limitations, amounts placed in the Repurchase Fund were used to repurchase
Interests from existing Limited Partners. In February 1997, the Partnership
discontinued the repurchase of Interests from Limited Partners. An amount not
to exceed that originally allocated to the Repurchase Fund will be returned to
the Partnership at liquidation, which will be accounted for as a capital
contribution from the General Partner. As of December 31, 1998, there were
3,192 Interests and cash of $320,854 in the Repurchase Fund.
The Partnership has disposed of all of its remaining real property investments.
The "Net Cash Proceeds" resulting therefrom, which were available for
distribution, were distributed to the Taxable and Tax-exempt Limited Partners
in accordance with the Partnership Agreement. Since the required subordination
levels were not met, the General Partner has not received any distributions of
Net Cash Proceeds during the lifetime of the Partnership.
5. Provision for Investment Property Writedown:
In each of 1998, 1997 and 1996, the General Partner determined that impairments
to the asset value of the Evanston Plaza Shopping Center located in Evanston,
Illinois, had occurred. As a result, the property was written down by
$3,400,000 in 1998, $850,000 in 1997 and $4,782,000 in 1996, to an amount
representing the Partnership's estimate of the property's sales value less
estimated closing costs. During 1998, the decline in value was attributable to
the purchase price reduction granted to the purchaser of the property due
primarily to estimated expenditures that will be necessary to correct
environmental issues at the property. During 1997 and 1996, the decline in
value was attributable to a decline in occupancy at the property, certain
tenant bankruptcies in 1996 and an overall softness in the retail market.
6. Management Agreement:
The Partnership's properties were managed by third party management companies
prior to the sale of the properties. These management agreements provided for
annual fees of 3% to 6% of gross operating receipts.
7. Investment in Joint Venture with Affiliates:
In 1995, the Partnership and three affiliates (the "Participants") acquired
title to the 45 West 45th Street Office Building. Profits and losses, all
capital contributions and distributions were allocated in accordance with the
Participants' original funding percentages. The Partnership's sharing
percentage was 15.22%. In November 1996, the Participants sold the property in
an all cash sale for $10,300,000. From the proceeds of the sale, the joint
venture paid $579,075 in selling costs. In connection with the sale of this
<PAGE>
property, the Participants recognized a recovery of a previously established
loss allowance of $2,473,000 and a gain of $461,185, totaling $2,934,185 of
which $446,583 was the Partnership's share. This amount was included in the
Partnership's participation in income of joint venture with affiliates.
During 1996, the Partnership received distributions from the joint venture
totaling $1,534,680, and made a contribution of $15,934. Pursuant to the sale
agreement, $500,000 of the sale proceeds was retained by the joint venture and
was unavailable for distribution until April 1997, at which time the funds were
released in full. The Partnership's share of these proceeds was $76,101.
The following information has been summarized from the financial statements of
the joint venture for the year ended December 31, 1996:
Total income $1,962,936
Income before gain on sale 1,980
Gain on sale 461,185
Net income 2,936,165
8. Tax Accounting:
The Partnership keeps its books in accordance with the Internal Revenue Code,
rules and regulations promulgated thereunder and existing interpretations
thereof. The accompanying financial statements, which are prepared in
accordance with generally accepted accounting principles ("GAAP"), will differ
from the tax returns due to the different treatment of various items as
specified in the Internal Revenue Code. The net effect of these accounting
differences is that the taxable loss for 1998 is $9,217,166 more than the net
loss in the financial statements. This difference resulted primarily from
writedowns taken on the Evanston Plaza Shopping Center for GAAP reporting in
prior years.
9. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates are:
Year Ended Year Ended Year Ended
12/31/98 12/31/97 12/31/96
-------------- --------------- ---------------
Paid Payable Paid Payable Paid Payable
------ ------- ------ -------- ------ --------
Reimbursement of expenses
to the General Partner,
at cost:
Accounting $6,876 $7,213 $20,128 $3,789 $9,977 $7,653
Data processing 3,200 1,443 3,227 None 670 None
Legal 38,818 44,736 11,092 2,088 8,578 6,579
Portfolio management 30,038 32,273 97,825 19,021 56,011 42,962
Other 1,599 None 8,495 1,599 2,585 1,983
Prior to May 1995, the Partnership participated in an insurance deductible
program with other affiliated partnerships in which the program paid claims up
<PAGE>
to the amount of the deductible under the master insurance policy for its
properties. The program was administered by an affiliate of the General Partner
(The Balcor Company) who received no fee for administering the program.
However, the General Partner was reimbursed for expenses. The Partnership paid
premiums to the deductible insurance program relating to claims for periods
prior to May 1, 1995 of $4,582 for 1996.
10. Property Sales:
(a) In December 1998, the Partnership sold the Evanston Plaza Shopping Center
in an all cash sale for $3,500,000, less credits totaling $341,681 related to
leasing commissions and roof repairs. From the proceeds of the sale, the
Partnership paid $153,755 in selling costs. In connection with the sale,
$517,651 related to tenant reimbursements was placed in escrow at closing and
will be held in escrow until such time as payment of these reimbursements are
received from the tenants. The Partnership will recognize income as amounts are
received from the escrow. In addition, $46,000 was being held in escrow until a
lien waiver was received from the former property management company regarding
the payment of its fees. The funds were released in full in March 1999. The
basis of the property at the date of sale was $3,131,264, net of accumulated
depreciation of $5,435,224. For financial statement purposes, the Partnership
recognized a loss of $126,700 from the sale of this property.
An enviromental study of Evanston Plaza in 1997 identified certain
environmental issues of the site including the presence of aresenic, lead and
PNA's in the ground soil and vinyl chloride in the ground water. The Partnership
filed a Remedial Action Plan ("RAP") with the Illinois Environmental Protection
Agency ("IEPA"). In November 1998, the Partnership received a letter from the
IEPA approving the RAP, as revised. The RAP contemplates the remediation of
most of the contaminated ground soil under certain parts of the remediated
under the RAP. Additionally, the contaminants present in the ground water are
not required to, and therefore will not be, remediated under the RAP. The
purchaser of the property has agreed to indeminfy the Partnership for the first
$3,700,000 of costs incurred in connection with the remediation of the property,
including amounts expended by the purchaser for those items covered in the RAP.
The General Partner does not believe that the total costs of remediation under
the RAP will exceed $3,700,000. Limited Partners would not have any liability
for any environmental costs regardless of whether such costs are incurred before
of after dissolution of the Partnership.
(b) In May 1997, the Partnership sold the Gleneagles Apartments in an all cash
sale for $13,300,000. From the proceeds of the sale, the Partnership paid
$525,090 in selling costs. The basis of the property was $8,556,811 which is
net of accumulated depreciation of $5,051,642. For financial statement
purposes, the Partnership recognized a gain of $4,218,099 from the sale of this
property.
11. Settlement Income:
In April 1997, the Partnership entered into a settlement agreement with the
manufacturer of the roof at the Evanston Plaza Shopping Center relating to
alleged defects. The Partnership received $276,068 in satisfaction of its
claims. The amount received was recognized by the Partnership as settlement
income for financial statement purposes.
<PAGE>
12. Contingency:
The Partnership is currently involved in a lawsuit, Dee vs. Walton Street
Capital Acquisition II, LLC, whereby the Partnership, the General Partner and
certain third parties have been named as defendants seeking damages relating to
tender offers to purchase interests in the Partnership and nine affiliated
partnerships initiated by the third party defendants in 1996. The defendants
continue to vigorously contest this action. The action has been dismissed with
prejudice, which dismissal was affirmed by the Illinois Appellate Court. It is
not determinable at this time how the outcome of this action will impact the
remaining cash reserves of the Partnership. The Partnership believes that it
has meritorious defenses to contest the claims.
13. Subsequent Event:
In February 1999, the Partnership made a distribution to the holders of Limited
Partnership Interests of $3,804,852 ($20.54 per Taxable Interest and $20.51 per
Tax-exempt Interest). This amount represents a distribution of available Net
Cash Proceeds primarily from the sale of the Evanston Plaza Shopping Center
($18.08 per Taxable and Tax-exempt Interest) and available Net Cash Receipts
reserves ($2.46 per Taxable Interest and $2.43 per Tax-exempt Interest).
<PAGE>
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<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 5525
<SECURITIES> 0
<RECEIVABLES> 19
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5590
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 5590
<CURRENT-LIABILITIES> 279
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 5311
<TOTAL-LIABILITY-AND-EQUITY> 5590
<SALES> 0
<TOTAL-REVENUES> 2310
<CGS> 0
<TOTAL-COSTS> 1169
<OTHER-EXPENSES> 4427
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3539)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3539)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3539)
<EPS-PRIMARY> (18.10)
<EPS-DILUTED> (18.10)
</TABLE>
