UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-17653
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BALCOR PREFERRED PENSION-12
A REAL ESTATE LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
Illinois 36-3523598
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2355 Waukegan Road
Bannockburn, Illinois 60015
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 267-1600
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
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(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ X ]
<PAGE>
PART I
Item 1. Business
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Balcor Preferred Pension-12 A Real Estate Limited Partnership (the
"Registrant") is a limited partnership formed in 1987 under the laws of the
State of Illinois. The Registrant raised $29,270,800 from sales of Limited
Partnership Interests. The Registrant's operations currently consist of an
investment in one participating first mortgage loan and two joint venture
investments in real properties, and all financial information included in this
report relates to this industry segment.
The Registrant originally funded four loans. As a result of one repayment and
two foreclosures, the Registrant has one investment in an acquisition loan in
its portfolio and two investments in joint ventures with affiliates as of
December 31, 1995.
Operationally, existing apartment properties continued to register occupancy
percentages in the 90s, with average rents rising at an annual rate of between
3 and 4 percent. Apartments are still considered one of the top real estate
asset classes in terms of performance. However, some markets are experiencing
new construction of rental units which, if unrestrained, could impact the
performance of existing properties. Most of the new construction is aimed at
the two segments of the rental market which are growing the fastest: low-income
households and upper-income households who prefer to rent rather than own. Of
all the major asset classes, apartments typically display the least volatility
in terms of property values.
With virtually no new construction over the past few years, the national office
market has experienced consistently rising occupancy rates and, recently,
rising rental rates. Investor interest has also returned, typically preferring
suburban buildings over their downtown counterparts. Except for properties
built for a specific tenant, the economic feasibility of new construction in
most markets is still several years away. Build-to-suit construction for large
companies currently in leased space could restrict office appreciation rates
over the next few years. In addition, increased vacancies could result from
companies who restructure their workforce in order to reduce their occupancy
costs.
The General Partner had previously advised Limited Partners that the strategy
for the Registrant was to sell or otherwise dispose of all the assets over the
next four to five year period. The General Partner also stated that the timing
of the liquidation could be lengthened or shortened due to changes in market
conditions, economic factors, interest rates and unforeseen events. Since
February 1996, the General Partner believes that the market for multifamily
housing properties has become increasingly favorable to sellers of these
properties. This belief is based on the results of the sales and marketing
activities by various other partnerships affiliated with the Registrant. These
favorable market conditions are in part attributable to the increasing strength
of the capital markets and the re-entry of REITs into the acquisition market.
Additionally, the sale of the commercial properties may be accelerated if
market conditions are favorable. If the current market conditions for sales
remain favorable and appropriate sales prices can be obtained, the Registrant's
liquidation strategy may be accelerated.
<PAGE>
The Registrant received notice of an unsolicited offer for the purchase of
limited partnership interests ("tender offer") in February 1996, which tender
offer expired on March 12, 1996. The tender offer was made by Equity Resource
Fund - XVIII ("Equity Resource"). Equity Resource stated that their primary
motive in making the offer was to make a profit from the purchase of the
interests. Equity Resource acquired 1.1% of the total interests outstanding in
the Registrant. The Registrant incurred administrative costs in responding to
the tender offer and may incur additional costs if additional tender offers are
made in the future. The General Partner cannot predict with any certainty what
impact any future tender offers will have on the operations or management of
the Registrant.
In February 1995, the Registrant and three affiliates acquired title to the 45
West 45th Street Office Building through foreclosure. See Item 7. Liquidity and
Capital Resources for additional information.
The Registrant, by virtue of its joint venture ownership of real estate
acquired through foreclosure, is subject to federal and state laws and
regulations covering various environmental issues. Management of the Registrant
utilizes the services of environmental consultants to assess a wide range of
environmental issues and to conduct tests for environmental contamination as
appropriate. The General Partner is not aware of any potential liability due to
environmental issues or conditions that would be material to the Registrant.
The officers and employees of Balcor Mortgage Advisors-VIII, the General
Partner of the Registrant, and its affiliates perform services for the
Registrant. The Registrant currently has no employees engaged in its
operations.
Item 2. Properties
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The Registrant currently holds minority joint venture interests in the 45 West
45th Street Office Building (New York City, New York), and the Sun Lake
Apartments (Lake Mary, Florida), which were acquired through foreclosure. See
Note 6 of Notes to Financial Statements for additional information.
In the opinion of the General Partner, the Registrant has provided for adequate
insurance coverage for its real estate investment properties.
Item 3. Legal Proceedings
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Williams class action
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In February 1990, a proposed class-action complaint was filed, Paul Williams
and Beverly Kennedy, et al. vs. Balcor Pension Investors, et al., Case No.:
90-C-0726 (U.S. District Court, Northern District of Illinois). The Registrant,
the General Partner, seven affiliated limited partnerships (together with the
Registrant, the "Related Partnerships") and other affiliates are the
defendants. The complaint alleges violations of Federal securities laws as to
the adequacy and accuracy of disclosure of information in the offering of
limited partnership interests in the Related Partnerships and alleges breach of
fiduciary duty, fraud, negligence and violations under the Racketeer Influenced
and Corrupt Organizations Act. The complaint seeks compensatory and punitive
damages. The defendants subsequently filed a counterclaim asserting claims of
fraud and breach of warranty against certain plaintiffs, as well as a request
<PAGE>
for declaratory relief regarding the defendants' rights to be indemnified for
their expenses incurred in defending the litigation. The defendants seek to
recover for damage to their reputations and business as well as costs and
attorneys' fees in defending the claims.
In May 1993, the Court issued an order denying the plaintiffs' motion for class
certification based principally on the inadequacy of the individual plaintiffs
representing the proposed class. However, the Court gave plaintiffs leave to
propose new individual class representatives. Upon the defendants' motion, the
Court ordered plaintiffs' counsel to pay $75,000 to the defendants and $25,000
to the Court for costs incurred with the class certification motion, which
amounts continue to be outstanding.
In July 1994, the Court granted plaintiffs' motion certifying a class relating
to the Federal securities fraud claims. The class certified by the Court
includes only the original investors in the Related Partnerships. The
defendants filed a motion for reconsideration in opposition to the class
certification, which was denied in December 1994. The Court approved the
Notice of Class Action in August 1995 which was sent to potential members of
the class in September 1995.
The defendants intend to continue vigorously contesting this action.
Management of each of the defendants believes they have meritorious defenses to
contest the claims. It is not determinable at this time whether or not an
unfavorable decision in this action would have a material adverse impact on the
Registrant.
Item 4. Submission of Matters to a Vote of Security Holders
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No matters were submitted to a vote of the Limited Partners of the Registrant
during 1995.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
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Matters
- -------
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. Liquidity and Capital Resources. As of
December 31, 1995, no funds have been set aside in the Repurchase Fund to
repurchase Interests from Limited Partners and it is not expected that any
amounts will be available in the Repurchase Fund to satisfy repurchase requests
in the foreseeable future. See Note 3 of Notes to Financial Statements for
additional information.
As of December 31, 1995, the number of holders of Limited Partnership Interests
of the Registrant was 4,047.
Item 6. Selected Financial Data
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Year ended December 31,
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1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
Total income $1,040,598 $1,297,345 $1,423,424 $1,754,658 $2,024,310
Provision for po-
tential losses on
loans and accrued
interest receivable None None None 950,000 1,500,000
Net (loss) income (15,949) 320,140 1,057,775 (350,533) 150,106
Net (loss) income
per Limited
Partnership
Interest (0.18) 1.01 3.52 (1.19) .36
Total assets 15,191,890 16,930,247 20,515,424 20,605,925 22,516,537
Distributions per
Limited Partnership
Interest (A) 5.79 13.30 3.60 5.20 8.00
(A) These amounts include distributions of original capital of $.89, $10.00
and $2.02 per Limited Partnership Interest for the years 1995, 1994 and
1991, respectively.
Item 7. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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Operations
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Summary of Operations
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<PAGE>
Balcor Preferred Pension - 12 A Real Estate Limited Partnership (the
"Partnership") received lower interest income on loans during 1995 and 1994 as
a result of the Skyline Village loan repayment in 1994. In addition, the
Partnership recognized its share of provisions for losses relating to the
change in the estimates of the fair values of its joint venture investments
during 1995, 1994 and 1993. These losses are reflected in participation in
joint ventures with affiliates in the financial statements. The combined effect
of these events resulted in a net loss during 1995 as compared to net income
during 1994 and lower net income during 1994 as compared to 1993. Further
discussion of the Partnership's operations is summarized below.
1995 Compared to 1994
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The June 1994 repayment of the Skyline Village loan resulted in a decrease in
interest income on loans for 1995 when compared to 1994.
Higher interest rates resulted in an increase in interest income on short-term
investments for 1995 as compared to 1994.
As a result of higher legal fees in 1994 due to the default on the 45 West 45th
Street loan and higher mortgage servicing fees in 1994 due to the repayment of
the Skyline Village loan and the foreclosure on the 45 West 45th Street loan in
February 1995, administrative expenses were lower during 1995 as compared to
1994.
Provisions are charged to income when the General Partner believes an
impairment has occurred to the value of its joint venture properties or in a
borrower's ability to repay a loan or in the value of the collateral property.
Determinations of fair value are made periodically on the basis of performance
under the terms of the loan agreement and assessments of property operations.
Determinations of fair value represent estimations based on many variables
which affect the value of real estate, including economic and demographic
conditions. The Partnership recognized no provisions during 1995 and 1994
related to its loans. During 1995 and 1994, the Partnership recognized
provisions of approximately $918,000 and $685,000, respectively, related to the
Partnership's joint venture interests in real estate held for sale to provide
for changes in the estimate of the fair value of the properties.
Participation in joint ventures with affiliates represents the Partnership's
share of the income or loss for the Sun Lake Apartments and the 45 West 45th
Street Office Building. As a result of a provision for loss relating to the
change in the estimate of the fair value of the 45 West 45th Street Office
Building recognized during 1995 and lower income from this property during 1995
as compared to 1994, the participation in the loss of joint ventures with
affiliates was higher in 1995 as compared to 1994. This was partially offset by
a provision for loss relating to the change in the estimate of the fair value
of Sun Lake Apartments during 1995 which was less than the provision for loss
recognized in 1994 and higher income generated by this property in 1995 as
compared to 1994.
1994 Compared to 1993
- ---------------------
The June 1994 repayment on the Skyline Village loan resulted in a decrease in
interest income on loans during 1994 as compared to 1993.
<PAGE>
Higher average cash balances due to proceeds from the Skyline Village loan
repayment and higher interest rates resulted in an increase in interest income
on short-term investments during 1994 as compared to 1993.
As a result of an increase in legal fees related to the 45 West 45th Street
Office Building foreclosure, and increases in accounting fees and investor
communication expenses, administrative expenses increased during 1994 as
compared to 1993.
The Partnership recognized losses of approximately $685,000 in 1994 and
approximately $500,000 in 1993 as its share of the decline in fair value of the
Sun Lake Apartments and the 45 West 45th Street office building, respectively.
As a result, participation in loss of joint ventures with affiliates increased
during 1994 as compared to 1993.
Liquidity and Capital Resources
- --------------------------------
The cash position of the Partnership decreased as of December 31, 1995 as
compared to December 31, 1994 primarily due to a special distribution to
Limited Partners in July 1995. Operating activities consisted of the cash flow
from the Partnership's loan receivable and interest income earned on short-term
investments, which was partially offset by the payment of administrative
expenses. Investing activities consisted of net contributions to the joint
ventures with affiliates. Financing activities consisted of quarterly
distributions to the Limited Partners and the General Partner.
The Partnership classifies the cash flow performance of the properties in which
it has a joint venture interest as either positive, a marginal deficit or a
significant deficit. A deficit is considered to be significant if it exceeds
$250,000 annually or 20% of the property's rental and service income. The
Partnership defines cash flow generated from the properties as an amount equal
to the property's revenue receipts less property related expenditures, which
include any debt service payments. The 45 West 45th Street Office Building,
which does not have any underlying debt, generated positive cash flow during
1995 and 1994. In addition, significant leasing costs were incurred in 1995 at
the property. These items were not included in classifying the cash flow
performance of the property since they are nonrecurring expenditures. Had
these costs been included, the property would have generated a significant cash
flow deficit for 1995. The occupancy rate of this property was 86% at December
31, 1995. The Sun Lake Apartments, which has an underlying first mortgage loan,
generated positive cash flow during 1995 and 1994. The occupancy rate of the
property was 97% at December 31, 1995. Rental markets continue to remain
extremely competitive; therefore, the General Partner's goals are to maintain
high occupancy levels, while increasing rents where possible, and to monitor
and control operating expenses and capital improvement requirements at the
properties.
The General Partner had previously advised Limited Partners that the strategy
for the Partnership was to sell or otherwise dispose of all the assets over the
next four to five year period. The General Partner also stated that the timing
of the liquidation could be lengthened or shortened due to changes in market
conditions, economic factors, interest rates and unforeseen events. Since
February 1996, the General Partner believes that the market for multifamily
housing properties has become increasingly favorable to sellers of these
properties. This belief is based on the results of the sales and marketing
activities by various other partnerships affiliated with the Partnership. These
<PAGE>
favorable market conditions are in part attributable to the increasing strength
of the capital markets and the re-entry of REITs into the acquisition market.
Additionally, the sale of the commercial properties may be accelerated if
market conditions are favorable. If the current market conditions for sales
remain favorable and appropriate sales prices can be obtained, the
Partnership's liquidation strategy may be accelerated.
In October 1995, the underlying revenue bonds, which financed the Sun Lake
Apartments $15,700,000 mortgage note payable, were refunded. The proceeds from
the new bonds were used to repay the prior bonds. The interest rate increased
from 4.5% to 5.375%. The prior bonds were secured by a letter of credit for a
fee of 1.7% annually. The new bonds require payment of guarantee and servicing
fees totaling .975% annually. The monthly payment due on the new bonds is
$99,080. The maturity date of the bonds is November 2025 with the next
mandatory remarketing date being November 2005. In connection with the
refunding, the $700,000 debt service reserve was released, and the Sun Lake
joint venture paid approximately $775,000 in financing and closing fees.
The Partnership and three affiliates (the "Participants") funded a $23,000,000
mortgage loan collateralized by the 45 West 45th Street Office Building. The
Partnership funded $5,000,000 of the loan amount for a participating percentage
of 21.74%. In February 1995, the Participants received title to the property
through foreclosure.
In January 1996, the Partnership paid $175,625 ($.60 per Interest) to Limited
Partners, representing the regular quarterly distribution for the fourth
quarter of 1995 from Cash Flow. The level of the regular quarterly distribution
is consistent with that of the prior quarter. The Partnership also paid $4,503
to the General Partner as its unsubordinated distributive share of Cash Flow
for the fourth quarter of 1995. During July 1995, the Partnership paid $992,280
($3.39 per Interest) to Limited Partners, representing a special distribution
from Cash Flow reserves and a portion of the Mortgage Reductions received from
the repayment of the Skyline Village loan. The level of the regular quarterly
distributions was lower in 1995 as compared to 1994 and 1993 due to the
reduction in Cash Flow resulting from the repayment of the Skyline Village
loan. During 1995, 1994 and 1993, the Partnership made regular quarterly
distributions to Limited Partners from Cash Flow totaling $2.40, $3.30 and
$3.60 per Interest, respectively. During 1995 and 1994, the Partnership made
distributions to Limited Partners from Mortgage Reductions of $.89 and $10.00
per Interest, respectively. To date, including the January 1996 distribution,
the Partnership has distributed $50.49 per $100 Limited Partnership Interest,
of which $37.12 represents Cash Flow from operations and $13.37 represents
Original Capital.
The Noland Fashion Square loan has been recorded by the Partnership as an
investment in acquisition loan. The Partnership has recorded its share of the
collateral property's operations as equity in loss from investment in
acquisition loan. The Partnership's share of operations has no effect on the
cash flow of the Partnership. Amounts representing contractually required debt
service are recorded as interest income on loans.
The Partnership expects to continue making quarterly cash distributions from
available Cash Flow. In accordance with the Partnership Agreement, ninety-five
percent of such Cash Flow will be distributed to Limited Partners, and five
percent will be distributed to the General Partner as its share from
Partnership operations, subject to certain subordinations. Cash available for
distribution will be determined by the General Partner after it creates any
<PAGE>
Reserves or makes expenditures appropriate for the operation of the
Partnership. There is no assurance that the Partnership will generate Cash Flow
or that, if generated, it will be available for distribution or be sufficient
to provide a return of Original Capital, the Warranty Distribution or the
Cumulative Return. For the year ended December 31, 1995, $36,776, which
represents one-half of the General Partner's share of distributed Cash Flow,
was subordinated in accordance with the terms of the Partnership Agreement. See
Note 3 of Notes to Financial Statements for additional information.
In 1995, the Financial Accounting Standards Board issued Statement No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" which establishes accounting standards for impairment of
long-lived assets and long-lived assets to be disposed of. This statement has
been adopted by the Partnership as of January 1, 1995, and did not have a
material impact on the financial position or results of operations of the
Partnership.
Inflation has several types of potentially conflicting impacts on real estate
investments. Short-term inflation can increase real estate operating costs
which may or may not be recovered through increased rents and/or sales prices,
depending on general or local economic conditions. In the long-term, inflation
can be expected to increase operating costs and replacement costs and may lead
to increased rental revenues and real estate values.
Item 8. Financial Statement and Supplementary Data
- --------------------------------------------------
See Index to Financial Statements in this Form 10-K.
The supplemental financial information specified by Item 302 of Regulation S-K
is not applicable.
Item 9. Changes in and Disagreements with Accountants on Accounting and
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Financial Disclosure
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On September 14, 1995 the Registrant approved the engagement of Coopers &
Lybrand L.L.P. as its independent auditors for the fiscal year ending December
31, 1995 to replace the firm of Ernst & Young LLP, who were dismissed as
auditors of the Registrant effective September 14, 1995. The General Partner of
the Registrant approved the change in auditors.
The reports of Ernst & Young LLP on the Registrant's financial statements for
the past two fiscal years did not contain an adverse opinion or a disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope, or
accounting principles.
In connection with the audits of the Registrant's financial statements for each
of the two fiscal years ended December 31, 1994, and in the subsequent interim
period, there were no disagreements with Ernst & Young LLP on any matters of
accounting principles or practices, financial statement disclosure, or auditing
scope and procedures which, if not resolved to the satisfaction of Ernst &
Young LLP would have caused Ernst & Young LLP to make reference to the matter
in their report.
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
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(a) Neither the Registrant nor Balcor Mortgage Advisors-VIII, its General
Partner, has a Board of Directors.
(b, c & e) The names, ages and business experience of the executive officers
and significant employees of the General Partner of the Registrant are as
follows:
TITLE OFFICERS
----- --------
Chairman, President and Chief Thomas E. Meador
Executive Officer
Senior Vice President Alexander J. Darragh
Senior Vice President Josette V. Goldberg
Senior Vice President Alan G. Lieberman
Senior Vice President, Chief Brian D. Parker
Financial Officer, Treasurer
and Assistant Secretary
Senior Vice President John K. Powell, Jr.
Thomas E. Meador (July 1947) joined Balcor in July 1979. He is Chairman,
President and Chief Executive Officer and has responsibility for all ongoing
day-to-day activities at Balcor. He is a Director of The Balcor Company. He is
also Senior Vice President of American Express Company and is responsible for
its real estate operations worldwide. Prior to joining Balcor, Mr. Meador was
employed at the Harris Trust and Savings Bank in the commercial real estate
division where he was involved in various lending activities. Mr. Meador
received his M.B.A. degree from the Indiana University Graduate School of
Business.
Alexander J. Darragh (February 1955) joined Balcor in September 1988 and is
responsible for due diligence analysis and real estate advisory services for
Balcor and American Express Company. He also has supervisory responsibility for
Balcor's environmental matters. Mr. Darragh received masters' degrees in Urban
Geography from Queen's University and in Urban Planning from Northwestern
University.
Josette V. Goldberg (April 1957) joined Balcor in January 1985 and has primary
responsibility for all human resources matters. In addition, she has
supervisory responsibility for Balcor's MIS functions. Ms. Goldberg has been
designated as a Senior Human Resources Professional (SHRP).
Alan G. Lieberman (June 1959) joined Balcor in May 1983 and is responsible for
Balcor's property sales and capital markets functions. Mr. Lieberman is a
Certified Public Accountant.
Brian D. Parker (June 1951) joined Balcor in March 1986 and, as Chief Financial
Officer and Chief Accounting Officer, is responsible for Balcor's financial,
legal and treasury functions. He is a Director of The Balcor Company. Mr.
Parker is a Certified Public Accountant and holds an M.S. degree in Accountancy
from DePaul University.
<PAGE>
John K. Powell Jr. (June 1950) joined Balcor in September 1985 and is
responsible for portfolio and asset management matters relating to Balcor's
partnerships. Mr. Powell also has supervisory responsibility for Balcor's risk
management and investor services functions. He received a Master of Planning
degree from the University of Virginia. Mr. Powell has been designated a
Certified Real Estate Financier by the National Society for Real Estate Finance
and is a full member of the Urban Land Institute.
(d) There is no family relationship between any of the foregoing officers.
(f) None of the foregoing officers or employees are currently involved in any
material legal proceedings nor were any such proceedings terminated during the
fourth quarter of 1995.
Item 11. Executive Compensation
- -------------------------------
The Registrant has not paid and does not propose to pay any remuneration to the
executive officers of Balcor Mortgage Advisors-VIII, the General Partner.
Certain of these officers receive compensation from The Balcor Company (but not
from the Registrant) for services performed for various affiliated entities,
which may include services performed for the Registrant. However, the General
Partner believes that any such compensation attributable to services performed
for the Registrant is immaterial to the Registrant. See Note 7 of Notes to
Financial Statements for the information relating to transactions with
affiliates.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -----------------------------------------------------------------------
(a) No person owns of record or is known by the Registrant to own beneficially
more than 5% of the outstanding Limited Partnership Interests of the
Registrant.
(b) Neither Balcor Mortgage Advisors-VIII nor its officers or partners own any
Limited Partnership Interests of the Registrant.
Relatives and affiliates of the officers and partners of the General Partner
own no Limited Partnership Interests.
(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 7 of Notes to Financial Statements for additional information
relating to transactions with affiliates.
See Note 3 of Notes to Financial Statements for information relating to the
Partnership Agreement and the allocation of distributions and profits and
losses.
(c) No management person is indebted to the Registrant.
(d) The Registrant has no outstanding agreements with any promoters.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- ------------------------------------------------------------------------
(a)
(1 & 2) See Index to Financial Statements in this Form 10-K, Table of Contents
for Noland Fashion Square Partnership, and Index to Financial Statements for
Lake Sun Partners Limited Partnership, following this Form 10-K.
(3) Exhibits:
(3) The Amended and Restated Agreement of Limited Partnership and Amended
Certificate of Limited Partnership, previously filed as Exhibits 3.1 and 3.2,
respectively, to Amendment No. 1 to the Registrant's Registration Statement on
Form S-11 dated December 9, 1987 (Registration No. 33-16145), are incorporated
herein by reference.
(4) Form of Subscription Agreement previously filed as Exhibit 4.1 to Amendment
No. 1 to the Registrant's Registration Statement on Form S-11 dated December 9,
1987 (Registration No. 33-16145) 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. 0-17653) are
incorporated herein by reference.
(16) Letter from Ernst & Young LLP dated September 19, 1995 regarding the
change in the Registrant's certifying accountant previously filed as Exhibit 16
to the Registrant's Report on Form 8-K/A dated October 27, 1995 (Commission
File No. 0-17653) is incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for 1995 is attached hereto.
(b) Reports on Form 8-K: A Current Report on Form 8-K/A dated October 27,
1995, amending the Current Report on Form 8-K dated September 19, 1995
reporting a change in the Registrant's certifying accountant, was filed
(Commission File No. 0-17653).
(c) Exhibits: See Item 14(a)(3) above.
(d) Financial Statement Schedules:
See Index to Financial Statements in this Form 10-K.
See Table of Contents of the 1995 and 1994 Financial Statements for Noland
Fashion Square Partnership, which is the collateral for the Partnership's
$7,817,596 loan (Noland Fashion Square loan), following this Form 10-K.
See Indexes to the 1995 and 1994 Financial Statements of Lake Sun Partners
Limited Partnership following this Form 10-K.
<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 PREFERRED PENSION-12
A REAL ESTATE LIMITED PARTNERSHIP
By: /s/Brian D. Parker
-----------------------------
Brian D. Parker
Senior Vice President, and Chief
Financial Officer (Principal Accounting
and Financial Officer) of Balcor Mortgage
Advisors-VIII, the General Partner
Date: April 1, 1996
--------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------------------- -------------------------------- --------------
President and Chief Executive
Officer (Principal Executive
Officer) of Balcor Mortgage
Advisors-VIII, the General
/s/Thomas E. Meador Partner April 1, 1996
- -------------------- --------------
Thomas E. Meador
Senior Vice President, and Chief
Financial Officer (Principal
Accounting and Financial Officer)
of Balcor Mortgage Advisors-VIII,
/s/Brian D. Parker the General Partner April 1, 1996
- ------------------- --------------
Brian D. Parker
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants
Report of Independent Auditors
Financial Statements:
Balance Sheets, December 31, 1995 and 1994
Statements of Partners' Capital, for the years ended December 31, 1995, 1994
and 1993
Statements of Income and Expenses, for the years ended December 31, 1995, 1994
and 1993
Statements of Cash Flows, for the years ended December 31, 1995, 1994 and 1993
Notes to Financial Statements
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 Preferred Pension-12
A Real Estate Limited Partnership:
We have audited the accompanying balance sheet of Balcor Preferred Pension-12 A
Real Estate Limited Partnership (An Illinois Limited Partnership) as of
December 31, 1995 and the related statements of partners' capital, income and
expenses and cash flows for the year then ended. These financial statements are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audit. We did not
audit the financial statements of Noland Fashion Square Partnership, owner of
the shopping center known as Noland Fashion Square (the "Property"), which
collateralizes the acquisition loan receivable held by the Partnership. The
acquisition loan receivable represents 48% of the Partnership's assets at
December 31, 1995. The Partnership's equity in loss related to the Property was
$72,294 for the year ended December 31, 1995. The financial statements of
Noland Fashion Square Partnership were audited by another auditor whose report
has been furnished to us. Our opinion, insofar as it relates to data included
for the equity in loss of the Property to which the Partnership holds an
acquisition loan, is based solely on the report of other auditors.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audit and the report of the other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of Balcor Preferred Pension-12 A Real Estate
Limited Partnership (An Illinois Limited Partnership) at December 31, 1995 and
the results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 27, 1996
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners of
Balcor Preferred Pension-12
A Real Estate Limited Partnership
We have audited the accompanying balance sheet of Balcor Preferred Pension-12 A
Real Estate Limited Partnership (An Illinois Limited Partnership) as of
December 31, 1994 and the related statements of partners' capital, income and
expenses and cash flows for each of the two years in the period ended December
31, 1994. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of Noland Fashion Square Partnership, which owns the shopping center
known as Noland Fashion Square (the "Property"), with respect to which the
Partnership has made an investment in an acquisition loan. The Partnership's
equity in loss related to the Property was $64,582 and $71,378 in 1994 and 1993
respectively. The financial statements of Noland Fashion Square Partnership
were audited by another auditor whose report has been furnished to us. Our
opinion, insofar as it relates to data included for the equity in loss of the
Property to which the Partnership has made an investment in an acquisition
loan, is based solely on the report of other auditors.
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 and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of Balcor Preferred Pension-12 A Real Estate
Limited Partnership at December 31, 1994 and the results of its operations and
its cash flows for each of the two years in the period ended December 31, 1994,
in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
March 21, 1995
<PAGE>
BALCOR PREFERRED PENSION-12
A REAL ESTATE LIMITED PARTNERSHIP
(AN ILLINOIS LIMITED PARTNERSHIP)
BALANCE SHEETS
December 31, 1995 and 1994
ASSETS
1995 1994
------------ ------------
Cash and cash equivalents $ 3,062,342 $ 4,256,384
Accounts and accrued interest receivable 54,970 60,777
------------ ------------
3,117,312 4,317,161
------------ ------------
Investment in acquisition loan receivable 7,817,596 7,889,890
Less:
Allowance for potential loan losses 545,000 545,000
------------ ------------
Net investment in acquisition loan receivable 7,272,596 7,344,890
Investment in joint ventures - affiliates 4,801,982 5,268,196
------------ ------------
12,074,578 12,613,086
------------ ------------
$ 15,191,890 $ 16,930,247
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 82,545 $ 44,388
Due to affiliates 13,952 42,961
------------ ------------
Total liabilities 96,497 87,349
Limited Partners' capital (292,708 Interests
issued and outstanding) 15,137,296 16,884,801
General Partner's deficit (41,903) (41,903)
------------ ------------
Total partners' capital 15,095,393 16,842,898
------------ ------------
$ 15,191,890 $ 16,930,247
============ ============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PREFERRED PENSION-12
A REAL ESTATE LIMITED PARTNERSHIP
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
for the years ended December 31, 1995, 1994 and 1993
Partners' Capital (Deficit) Accounts
----------------------------------------
General Limited
Total Partner Partners
------------ ------------ ------------
Balance at December 31, 1992 $ 20,463,535 $ (41,903)$ 20,505,438
Cash distributions (A) (1,080,768) (27,020) (1,053,748)
Net income for the year ended
December 31, 1993 1,057,775 27,020 1,030,755
------------ ------------ ------------
Balance at December 31, 1993 20,440,542 (41,903) 20,482,445
Cash distributions (A) (3,917,784) (24,768) (3,893,016)
Net income for the year ended
December 31, 1994 320,140 24,768 295,372
------------ ------------ ------------
Balance at December 31, 1994 16,842,898 (41,903) 16,884,801
Cash distributions (A) (1,731,556) (36,776) (1,694,780)
Net (loss) income for the year
ended December 31, 1995 (15,949) 36,776 (52,725)
------------ ------------ ------------
Balance at December 31, 1995 $ 15,095,393 $ (41,903)$ 15,137,296
============ ============ ============
(A) Summary of cash distributions paid per Limited Partnership Interest:
1995 1994 1993
------------ ------------ ------------
First Quarter $ 0.60 $ 0.90 $ 0.90
Second Quarter 0.60 0.90 0.90
Third Quarter 3.99 0.90 0.90
Fourth Quarter 0.60 10.60 0.90
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PREFERRED PENSION-12
A REAL ESTATE LIMITED PARTNERSHIP
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF INCOME AND EXPENSES
for the years ended December 31, 1995, 1994 and 1993
1995 1994 1993
------------ ------------ ------------
Income:
Interest on loans $ 823,242 $ 1,117,310 $ 1,383,790
Interest on short-term
investments 217,356 180,035 39,634
------------ ------------ ------------
Total income 1,040,598 1,297,345 1,423,424
------------ ------------ ------------
Expenses:
Administrative 292,844 399,995 254,307
------------ ------------ ------------
Total expenses 292,844 399,995 254,307
------------ ------------ ------------
Income before participation in
loss of joint ventures -
affiliates and equity in loss
from investment in acquisition
loans 747,754 897,350 1,169,117
Participation in loss of
joint ventures - affiliates (691,409) (512,628) (39,964)
Equity in loss from investment
in acquisition loan (72,294) (64,582) (71,378)
------------ ------------ ------------
Net (loss) income $ (15,949)$ 320,140 $ 1,057,775
============ ============ ============
Net income allocated to
General Partner $ 36,776 $ 24,768 $ 27,020
============ ============ ============
Net (loss) income allocated to
Limited Partners $ (52,725)$ 295,372 $ 1,030,755
============ ============ ============
Net (loss) income per Limited
Partnership Interest (292,708
issued and outstanding) $ (0.18)$ 1.01 $ 3.52
============ ============ ============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PREFERRED PENSION-12
A REAL ESTATE LIMITED PARTNERSHIP
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1995, 1994 and 1993
1995 1994 1993
------------ ------------ ------------
Operating activities:
Net (loss) income $ (15,949)$ 320,140 $ 1,057,775
Adjustments to reconcile net
(loss) income to net cash
provided by operating
activities:
Equity in loss from
investment in
acquisition loan 72,294 64,582 71,378
Participation in loss of
joint ventures -
affiliates 691,409 512,628 39,964
Accrued interest income
due at maturity of loan (7,196) (13,778)
Collection of accrued
interest income due at
maturity 132,966
Net change in:
Escrow deposits -
restricted 11,168 11,318
Accounts and accrued
interest receivable 5,807 41,167 64,953
Accounts payable 38,157 5,314 6,798
Due to affiliates (29,009) 29,426 2,868
Escrow liabilities (22,273) (213)
------------ ------------ ------------
Net cash provided by
operating activities 762,709 1,087,922 1,241,063
------------ ------------ ------------
Investing activities:
Collection of principal
payment on loan receivable 5,250,000
Capital contributions to joint
ventures - affiliates (569,417) (101,639)
Distributions from joint
ventures - affiliates 344,222 192,160 451,656
------------ ------------ ------------
Net cash (used in) or provided
by investing activities (225,195) 5,442,160 350,017
------------ ------------ ------------
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PREFERRED PENSION-12
A REAL ESTATE LIMITED PARTNERSHIP
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1995, 1994 and 1993
(CONTINUED)
1995 1994 1993
-------------- ------------ ------------
Financing activities:
Distributions to Limited
Partners $ (1,694,780)$ (3,893,016)$ (1,053,748)
Distributions to General
Partner (36,776) (24,768) (27,020)
Repayment of loan to
General Partner (76,961)
------------ ------------ ------------
Net cash used in
financing activities (1,731,556) (3,917,784) (1,157,729)
------------ ------------ ------------
Net change in cash and cash
equivalents (1,194,042) 2,612,298 433,351
Cash and cash equivalents at
beginning of year 4,256,384 1,644,086 1,210,735
------------ ------------ ------------
Cash and cash equivalents at
end of year $ 3,062,342 $ 4,256,384 $ 1,644,086
============ ============ ============
The accompanying notes are an integral part of the financial statements.
<PAGE>
BALCOR PREFERRED PENSION-12
A REAL ESTATE LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Nature of the Partnership's Business:
Balcor Preferred Pension-12 A Real Estate Limited Partnership is engaged
principally in investment in joint venture interests in residential and
commercial real estate and investment in a first mortgage loan located in
various markets within the United States.
2. Accounting Policies:
(a) The preparation of the financial statements in conformity with generally
accepted accounting principles requires the General Partner to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could vary from those estimates.
(b) Income on loans is recorded as earned in accordance with the terms of the
related loan agreements. The accrual of interest is discontinued when a loan
becomes ninety days contractually delinquent or sooner when, in the opinion of
the General Partner an impairment has occurred in the value of the collateral
property securing the loan. Income on nonaccrual loans or loans which are
otherwise not performing in accordance with their terms is recorded on a cash
basis.
(c) Loan losses on the acquisition loan are charged to income and an allowance
account is established when the General Partner believes the loan balance will
not be recovered. The General Partner assesses the collectibility of the loan
on a periodic basis through a review of the collateral property operations, the
property value and the borrower's ability to repay the loan.
(d) Investment in acquisition loan represents the mortgage loan which, because
the loan agreement includes certain specified terms, must be accounted for as
an investment in a real estate venture. The investment is therefore reflected
in the accompanying financial statements using the equity method of accounting.
Under this method, the Partnership records its investment at cost (representing
total loan funding), and subsequently adjusts its investment for its share of
the collateral property's income or loss.
Amounts representing contractually-required debt service are recorded in the
accompanying Statements of Income and Expenses as interest income. Equity in
loss from investment in acquisition loan represents the Partnership's share of
the collateral property operations, including depreciation and interest
expense. The Partnership's share of operations has no effect on cash flow of
the Partnership.
(e) Investment in joint ventures - affiliates represents the Partnership's
interest, under the equity method of accounting, in the joint ventures with
affiliates. Under the equity method of accounting, the Partnership records its
initial investments at cost and adjusts its investment accounts for additional
capital contributions, distributions and its share of each joint venture's
income or loss.
<PAGE>
(f) The Financial Accounting Standard Board's Statement No. 107, "Disclosures
About Fair Value of Financial Instruments", requires disclosure of fair value
information about financial instruments for which it is practicable to estimate
that value. Since quoted market prices are not available for the Partnership's
financial instruments, fair values have been based on estimates using present
value techniques. These techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, may not be realized in
immediate settlement of the instrument. Statement No. 107 does not apply to all
balance sheet items and excludes certain financial instruments and all
non-financial instruments such as real estate and investment in joint ventures
from its disclosure requirements.
(g) Cash and cash equivalents include all unrestricted, highly liquid
investments with an original maturity of three months or less.
(h) The Partnership is not liable for Federal income taxes and each partner
recognizes his proportionate share of the Partnership income or loss in his tax
return; therefore, no provision for income taxes is made in the financial
statements of the Partnership.
(i) Mortgage servicing fees have been reclassified and are included in
administrative expenses during 1995. This reclassification has also been made
to the previously reported 1994 and 1993 financial statements to conform with
the classification used in 1995. This reclassification has not changed the 1994
and 1993 results.
3. Partnership Agreement:
The Partnership was organized on July 15, 1987. The Partnership Agreement
provides for Balcor Mortgage Advisors-VIII to be the General Partner and for
the admission of Limited Partners through the sale of up to 2,000,000 Limited
Partnership Interests at $100 per Interest, of which 292,708 were sold through
April 28, 1989, the termination date of the offering.
Pursuant to the Partnership Agreement, all profits of the Partnership will be
allocated to the General Partner at the greater of 1% of such profits or the
General Partner's share of Partnership distributions, with the remainder
allocated to the Limited Partners. All losses of the Partnership will be
allocated 99% to the Limited Partners and 1% to the General Partner. All
deductions for offering period payments made to Limited Partners with funds
contributed by the General Partner were allocated to the General Partner.
To the extent available, Cash Flow will be distributed as follows: (i) 95% will
be paid to the holders of Interests and (ii) 5% will be paid to the General
Partner. Up to 50% of the General Partner's share of Cash Flow shall be
utilized to pay to the Limited Partners any deficiency in the Warranty
Distribution of 8% per annum. Amounts utilized from the General Partner's share
of Cash Flow to pay a deficiency in the Warranty Distribution will be repaid to
the General Partner from future Cash Flow available for distribution or from
Mortgage Reductions only after the required subordination levels have been
attained.
To the extent that one-half of the General Partner's share of Cash Flow has not
been utilized to meet deficiencies in the Warranty Distribution, or has been so
<PAGE>
utilized and has subsequently been repaid to the General Partner, such share
will be allocated to the Repurchase Fund. Amounts placed in the Repurchase Fund
may, at the sole discretion of the General Partner and subject to certain
limitations, be used to repurchase Interests from existing Limited Partners.
The General Partner anticipates that one half of its share of Cash Flow will
continue to be utilized to fund deficiencies in the Warranty Distribution and,
therefore, the General Partner does not expect that the Repurchase Fund will
repurchase Interests in the foreseeable future. Amounts allocated, if any, to
the Repurchase Fund will be commingled with other assets of the General Partner
and, to the extent then available, will be returned to the Partnership at the
dissolution of the Partnership to the extent necessary to permit payment to
investors of their Original Capital plus any deficiency in their Cumulative
Return.
4. Investment in Acquisition Loan:
The Partnership and two affiliates (the "Participants") funded the $23,300,000
Noland Fashion Square loan in 1989. The Partnership participates ratably in
approximately 38% of the loan, interest income and participation income. The
Partnership's share of the loan balance at December 31, 1995 is $7,817,596.
Current monthly interest only payments of $68,604 are due representing an
interest rate of 9.75%, and the loan matures in 1999. The Participants may
receive additional payments from the borrower representing participation in the
operating results of the collateral property which exceed specified levels and
a share of appreciation in the collateral property upon repayment or
refinancing.
5. Allowances for Losses on Loans
Activity recorded in the allowances for losses on loans during the three years
ended December 31, 1995 is described in the table below.
1995 1994 1993
------------ ----------- -----------
Loans:
Balance at beginning of
year $ 545,000 $ 545,000 $ 1,345,000
Direct write-off of loans
against allowance None None (800,000)
----------- ----------- -----------
Balance at the end of the year $ 545,000 $ 545,000 $ 545,000
=========== =========== ===========
6. Investments in Joint Ventures - Affiliates:
(a) In 1992, the Partnership and an affiliate acquired title to Sun Lake
Apartments. Profits and losses, all capital contributions and distributions are
allocated in accordance with the participants' original funding percentages.
The Partnership's ownership percentage is 38.05%. During 1995 and 1994, the
Partnership recognized losses of $380,500 and $684,900, respectively, as its
share of the provisions relating to the change in the estimate of the fair
value of the property. These amounts are included in the Partnership's
participation in income (loss) of joint ventures with affiliates. In addition,
during 1995, 1994 and 1993 the Partnership received distributions from this
joint venture totaling $165,500, $192,160, and $57,770, respectively. The
Partnership made contributions of $279,122 and $101,639 in 1995 and 1993,
respectively.
<PAGE>
The original borrower has retained the right to receive 20% of the net proceeds
received upon the first sale of the property after the payment of the third
party debt, closing costs, proration items and an amount to the participants
equal to their original investment plus certain returns specified in the
foreclosure sale agreement. However, in no event will this amount exceed
$500,000.
(b) In 1995, the Partnership and three affiliates acquired title to the 45 West
45th Street Office Building. The Partnership's investment was reclassified from
loan in substantive foreclosure to an investment in joint venture with an
affiliate effective January 1993 because it was the General Partner's opinion
that the borrower had effectively surrendered control of the property at that
time. Profits and losses, all capital contributions and distributions are
allocated in accordance with the participants' original funding percentages.
The Partnership's ownership percentage is 21.74%. During 1995 and 1993, the
Partnership recognized losses of $537,630 and $500,000, respectively, as its
share of the provisions relating to the change in the estimate of the fair
value of the property. These amounts are included in the Partnership's
participation in income (loss) of joint ventures with affiliates. In addition,
during 1995, the Partnership made contributions of $290,295 to the joint
venture. During 1995 and 1993, the Partnership received distributions of
$178,722 and $393,886, respectively, from the joint venture.
The following information has been summarized from the financial statements of
the joint ventures:
1995 1994 1993
------------ ------------ ------------
Net investment in real
estate held for sale
as of December 31 $ 30,786,840 $ 31,603,406 $ 24,685,000
Total liabilities as
of December 31 15,873,390 15,982,056 15,869,439
Total income 6,163,884 6,102,755 3,415,562
Income before provision 387,474 636,269 173,851
Provision for potential
losses 3,473,000 1,800,000
Net (loss) income (3,085,526) (1,163,731) 173,851
The joint venture information for 1995 and 1994 includes information for both
the 45 West 45th Street Office Building and Sun Lake Apartments. The joint
venture information for 1993 includes only information for Sun Lake Apartments.
7. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates are:
Year Ended Year Ended Year Ended
12/31/95 12/31/94 12/31/93
-------------- -------------- --------------
Paid Payable Paid Payable Paid Payable
------ ------- ------ ------- ------ -------
Mortgage servicing fees $23,229 $1,759 $41,264 $ 2,801 $46,733 $3,894
Reimbursement of expenses
<PAGE>
to the General Partner,
at cost:
Accounting 38,880 3,793 47,471 19,682 38,570 3,190
Data processing 5,255 331 12,400 2,219 16,316 4,303
Investor communica-
tions 2,053 None 17,127 1,990 1,620 134
Legal 7,356 1,132 3,492 1,622 987 82
Other 2,796 None 12,543 2,977 2,349 195
Portfolio management 46,128 6,937 16,903 11,670 21,004 1,737
The General Partner subordinates receipt of one-half of its share of
distributed Cash Flow, totaling $36,776, $24,768 and $27,020 for the years
ending December 31, 1995, 1994 and 1993, respectively. These amounts will be
paid to the General Partner only after required distribution levels to
investors have been met and such amounts, if any, will then be allocated to the
Repurchase Fund.
8. Contingency:
The Partnership is currently involved in a lawsuit whereby the Partnership and
certain affiliates have been named as defendants alleging certain federal
securities law violations with regard to the adequacy and accuracy of
disclosures of information concerning the offering of the Limited Partnership
Interests of the Partnership. The defendants continue to vigorously contest
this action. While a plaintiff class has been certified, no determinations of
the merits have been made. It is not determinable at this time whether or not
an unfavorable decision in this action would have a material adverse impact on
the Partnership. Management of each of the defendants believes they have
meritorious defenses to contest the claims.
9. Fair Value of Financial Instruments:
The carrying amounts and fair values of the Partnership's financial instruments
at December 31, 1995 are as follows:
The carrying value of cash and cash equivalents, accounts and accrued interest
receivable and accounts payable approximates fair value.
Acquisition loan receivable: The carrying value of the acquisition loan
receivable approximates the fair value.
10. Subsequent Event:
In January 1996, the Partnership paid $175,625 ($.60 per Interest) to Limited
Partners, representing a distribution for the fourth quarter of 1995 from Cash
Flow.
<PAGE>
NOLAND FASHION SQUARE PARTNERSHIP
YEARS ENDED DECEMBER 31, 1995 AND 1994
<PAGE>
NOLAND FASHION SQUARE PARTNERSHIP
YEARS ENDED DECEMBER 31, 1995 AND 1994
CONTENTS
Independent auditors' report
Financial statements:
Balance sheets
Statements of operations
Statements of changes in partners' equity deficiency
Statements of cash flows
Notes to financial statements
<PAGE>
Independent Auditors' Report
----------------------------
To the Partners
Noland Fashion Square Partnership
Kansas City, Missouri
We have audited the accompanying balance sheets of Noland Fashion Square
Partnership (the Partnership) as of December 31, 1995 and 1994, and the related
statements of operations, changes in partners' equity deficiency and cash flows
for the years then ended. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our 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 Noland Fashion Square
Partnership as of December 31, 1995 and 1994, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
/s/House Park & Company, P.C.
February 15, 1996
<PAGE>
NOLAND FASHION SQUARE PARTNERSHIP
BALANCE SHEETS - DECEMBER 31, 1995 AND 1994
ASSETS (Note 4)
1995 1994
----------- -----------
Property and equipment (Note 3) $13,594,584 $14,236,614
Cash 241,378 142,812
Accounts receivable, tenants,
less allowance for doubtful
accounts of $60,913 in 1995 and
$22,048 in 1994 162,621 90,854
Funds in escrow (Note 5) 234,699 288,294
Prepaid insurance 7,948
Deferred charges (Notes 2 and 6) 394,633 500,885
----------- -----------
$14,627,915 $15,267,407
=========== ===========
LIABILITIES AND PARTNERS' EQUITY DEFICIENCY
Liabilities:
Mortgage note payable
(Notes 2 and 4) $22,356,107 $22,356,107
Partners' notes payable
(Notes 2 and 4) 955,012 955,012
----------- -----------
23,311,119 23,311,119
----------- -----------
Accounts payable:
Trade 4,143 3,022
Tenants 27,678 25,213
Related parties (Note 2) 8,772 14,807
----------- -----------
40,593 43,042
----------- -----------
Accrued interest 123,049 123,049
----------- -----------
Tenants' security deposits 15,166 14,018
----------- -----------
23,489,927 23,491,228
Partners' equity deficiency ( 8,862,012) ( 8,223,821)
----------- -----------
$14,627,915 $15,267,407
=========== ===========
See notes to financial statements.
<PAGE>
NOLAND FASHION SQUARE PARTNERSHIP
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
---------- ----------
Revenues:
Rent (Note 7) $2,437,819 $2,453,835
Interest 28,523 19,533
Other (Note 7) 647,055 538,105
---------- ----------
3,113,397 3,011,473
---------- ----------
Expenses:
Amortization 135,526 158,609
Contract labor 54,101 59,525
Depreciation 644,625 643,280
Insurance 39,736 42,082
Interest (Note 4) 2,181,263 2,180,995
Management fees (Note 2) 59,265 60,955
Bad debt expense 38,865 9,646
Other 11,164 15,521
Professional fees (Note 2) 22,974 22,333
Property tax 492,722 390,579
Repairs and maintenance 27,121 26,187
Utilities 19,769 16,351
Loss on disposal of assets 24,457
---------- ----------
3,751,588 3,626,063
---------- ----------
Net loss ($ 638,191) ($ 614,590)
========== ==========
See notes to financial statements.
<PAGE>
NOLAND FASHION SQUARE PARTNERSHIP
STATEMENTS OF CHANGES IN PARTNERS' EQUITY DEFICIENCY
YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
----------- -----------
Balance, beginning ($8,223,821) ($7,609,231)
Net loss for the year ( 638,191) ( 614,590)
---------- ----------
Balance, ending ($8,862,012) ($8,223,821)
========== ==========
See notes to financial statements.
<PAGE>
NOLAND FASHION SQUARE PARTNERSHIP
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
----------- -----------
Cash flows from operating activities:
Net loss ($ 638,191) ($ 614,590)
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Depreciation 644,625 643,280
Amortization of deferred charges 135,526 158,609
Loss on disposal of assets 24,457
Change in accounts receivable ( 71,767) 39,362
Change in prepaid insurance 7,948 ( 7,948)
Change in accounts payable ( 2,449) ( 81,592)
Change in tenants' security
deposits 1,148 ( 19,306)
----------- ----------
Net cash provided by
operating activities 101,297 117,815
----------- ----------
Cash flows from investing activities:
Purchase of property and equipment ( 27,052) ( 21,231)
Increase in deferred charges ( 29,274) ( 43,433)
----------- ----------
Net cash used by investing
activities ( 56,326) ( 64,664)
----------- -----------
Cash flows from financing activities,
net change in funds held in escrow 53,595 ( 40,800)
----------- -----------
Net change in cash 98,566 12,351
Cash, beginning of year 142,812 130,461
----------- ----------
Cash, end of year $ 241,378 $ 142,812
========== ==========
Supplemental disclosure of cash
flow information:
Cash paid during the year
for interest $2,181,263 $2,180,995
========== ==========
See notes to financial statements.
<PAGE>
NOLAND FASHION SQUARE PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995 AND 1994
1. Organization and summary of significant accounting policies:
Organization:
Noland Fashion Square Partnership (the Partnership) is a Missouri
general partnership formed October 1, 1985 for the purpose of
developing, constructing and operating the Noland Fashion Square
Shopping Center in Independence, Missouri. Substantially all of the
Partnership's revenue is generated from the Independence, Missouri
rental property.
The Partnership Agreement provides for the allocation of profits and
losses proportionate to the partners' capital contributions.
Property and equipment and depreciation:
Property and equipment are stated at cost. Depreciation is provided
over the estimated useful lives of the assets using both straight-line
and accelerated methods.
Deferred charges:
Lease commissions are amortized by the straight-line method over the
term of the leases.
Financing costs are amortized by the straight-line method over the term
of the related loan.
Income taxes:
No provision is made for income taxes since such taxes, if any, are the
liability of the individual partners.
2. Related parties:
An affiliated company, two of the officers of which are partners in the
Partnership, manages the Partnership's rental property and is its primary
leasing agent. Management fees and leasing commissions accrued to the
affiliated company during 1995 and 1994 totaled $88,539 and $104,387,
<PAGE>
NOLAND FASHION SQUARE PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
2. Related parties (continued):
respectively, of which $8,772 and $14,807 were included in "Accounts
payable, related parties" as of December 31, 1995 and 1994, respectively.
The Partnership incurred legal fees of $10,472 and $8,829 in 1995 and
1994, respectively, payable to a law firm, one of whose partners is also
a partner of Noland Fashion Square Partnership.
Partners' notes payable at December 31, 1995 and 1994, represent funds
borrowed by the Partnership to pay down its mortgage (Note 4).
3. Property and equipment:
1995 1994
---- ----
Land and land improvements $ 3,593,488 $ 3,587,363
Building and improvements 14,022,336 14,019,795
Tenant leasehold improvements 1,307,923 1,319,852
----------- -----------
18,923,747 18,927,010
Accumulated depreciation ( 5,329,163) ( 4,690,396)
----------- -----------
$13,594,584 $14,236,614
=========== ===========
4. Mortgage payable:
The mortgage payable is collateralized by substantially all of the
Partnership's assets and assignment of leases. Interest only, at 9.75%, is
payable monthly until maturity on January 31, 2000. The loan agreement
also provides for the payment of additional interest contingent upon
positive cash flow and payment of 45% of the net appreciation of the
property above the original mortgage balance upon sale or transfer of the
property. No additional interest was required for 1995 or 1994.
All interest costs incurred in 1995 and 1994 were expensed.
The loan agreement required the Partnership to achieve net cash flow equal
to interest expense on the loan, calculated at 10.25%, by December 31,
1991. Any deficiency in the defined cash flow could have resulted in the
mortgagee drawing a maximum of $1,300,000 against the partners' letters of
credit, to be used to reduce the mortgage balance.
<PAGE>
NOLAND FASHION SQUARE PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
4. Mortgage payable (continued):
During 1992, the partners drew against these letters of credit and loaned
the funds to the Partnership which, in turn, reduced the mortgage balance
by $943,893, the shortfall computed for 1991.
5. Funds in escrow:
According to the provisions of the mortgage (Note 4), the Partnership is
required to maintain escrow accounts to pay future costs of property taxes
and property replacement. Monthly deposits are required for the tax
reserve and quarterly deposits for the replacement reserve. The funds held
in escrow consist of the following:
1995 1994
---- ----
Real estate tax reserve $ 29,960
Replacement reserve $180,022 141,294
Interest reserve 54,677 117,040
-------- --------
$234,699 $288,294
-------- --------
6. Deferred charges:
1995 1994
---- ----
Financing costs $ 758,522 $ 758,522
Leasing commissions and costs 707,424 678,150
---------- ----------
1,465,946 1,436,672
Accumulated amortization ( 1,071,313) ( 935,787)
---------- ----------
$ 394,633 $ 500,885
========== ==========
<PAGE>
NOLAND FASHION SQUARE PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1995 AND 1994
7. Operating leases:
The Partnership leases the Noland Fashion Square Shopping Center to tenants
under noncancellable operating leases with terms generally ranging from
three to fifteen years.
The following is a schedule of future minimum annual rental payments to be
received under these noncancellable operating leases as of December 31,
1995:
Year ending
December 31, Amount
------------ -------
1996 $ 2,363,486
1997 2,141,825
1998 1,963,919
1999 1,943,085
2000 1,813,885
Thereafter 8,987,598
-----------
$19,213,798
===========
The Partnership receives additional rent from tenants for common area
maintenance charges, which are allocated on a pro rata basis. Common area
maintenance charges were $138,850 and $120,406 in 1995 and 1994,
respectively. The Partnership is reimbursed for real estate taxes and
other defined expenses from certain tenants under the terms of their
leases. Other revenues include $457,563 and $347,707 from real estate tax
reimbursements in 1995 and 1994, respectively, and other defined expenses
of $32,612 and $23,488 in 1995 and 1994, respectively.
Certain lease agreements provide for the payment of contingent rent based
upon a percentage of the tenant's revenues. Contingent rent of $32,116 and
$19,992 is included in rent revenues in 1995 and 1994, respectively.
During 1994, the Partnership received $37,291 for lease cancellation fees
which are included in other revenues.
<PAGE>
LAKE SUN PARTNERS LIMITED PARTNERSHIP
Report of Independent Accountants
Financial Statements:
Balance Sheet, December 31, 1995
Statement of Income and Expenses and Partners' Capital, for the year ended
December 31, 1995
Statement of Cash Flows, for the year ended December 31, 1995
Notes to Financial Statements
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Lake Sun Partners Limited Partnership:
We have audited the accompanying balance sheet of Lake Sun Partners Limited
Partnership (An Illinois Limited Partnership) as of December 31, 1995 and the
related statement of income and expenses and partners' capital and statement of
cash flows for the year then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lake Sun Partners Limited
Partnership at December 31, 1995, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 27, 1996
<PAGE>
LAKE SUN PARTNERS LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEET
December 31, 1995
ASSETS
1995
---------------
Cash and cash equivalents $ 94,280
Prepaid expenses 52,289
Escrow deposits 552,147
Deferred expenses, (net of accumulated
amortization of $4,304) 770,440
---------------
1,469,156
---------------
Real estate held for sale:
Land 3,801,490
Structures (net of allowance of $2,800,000) 18,083,510
---------------
21,885,000
---------------
Total assets $ 23,354,156
===============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 43,455
Security deposits 93,143
Mortgage note payable 15,657,066
---------------
Total liabilities 15,793,664
Partners' capital 7,560,492
---------------
Total liabilities and partners' capital $ 23,354,156
===============
The accompanying notes are an integral part of the financial statements.
<PAGE>
LAKE SUN PARTNERS LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENT OF INCOME AND EXPENSES AND PARTNERS' CAPITAL
for the year ended December 31, 1995
1995
---------------
Income:
Rental $ 3,567,783
Service 117,783
Interest on short-term investments 105,311
---------------
Total income 3,790,877
---------------
Expenses:
Interest expense 959,064
Amortization of deferred expenses 69,721
Property operating 1,698,097
Real estate taxes 301,211
Property management fees 183,157
Provision for potential losses on real estate 1,000,000
---------------
Total expenses 4,211,250
---------------
Net loss $ (420,373)
Partners' capital at beginning of the year 7,994,029
Distributions to partners (292,285)
Contributions from partners 279,121
---------------
Partners' capital at end of year $ 7,560,492
===============
The accompanying notes are an integral part of the financial statements.
<PAGE>
LAKE SUN PARTNERS LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENT OF CASH FLOWS
for the year ended December 31, 1995
1995
---------------
Operating activities:
Net loss $ (420,373)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Provision for potential losses on real estate 1,000,000
Amortization of deferred expenses 69,721
Net change in:
Accounts receivable 125,000
Prepaid expenses (52,289)
Deferred expenses (774,744)
Escrow deposits (339,183)
Accounts payable (62,695)
Security deposits (3,037)
---------------
Net cash used in operating activities (457,600)
---------------
Financing activities:
Distributions to partners (292,285)
Contributions from partners 279,121
Principal payments on mortgage note payable (42,934)
Funding of repair escrows (201,075)
Release of restricted investment 700,000
---------------
Net cash provided by financing activities 442,827
---------------
Net change in cash and cash equivalents (14,773)
Cash and cash equivalents at beginning of period 109,053
---------------
Cash and cash equivalents at end of period $ 94,280
===============
The accompanying notes are an integral part of the financial statements.
<PAGE>
Lake Sun Partners Limited Partnership
(An Illinois Limited Partnership)
1. Nature of the Partnership's Business:
Lake Sun Partners Limited Partnership (the "Partnership") is engaged in the
operation of residential real estate located in Lake Mary, Florida.
2. Accounting Policies:
(a) The preparation of the financial statements in conformity with generally
accepted accounting principles requires Lake Sun Partners, Inc. (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) Effective January 1, 1995 the Partnership adopted Statement of Financial
Accounting Standards, No. 121 (SFAS 121), "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed Of". Under SFAS 121, the
Partnership records its investment in real estate at the lower of cost or fair
value, and periodically assesses, but not less than on an annual basis,
possible impairment to the value of its property. The General Partner estimates
the fair value of its property by dividing the property's expected net
operating income by a risk adjusted rate of return which considers economic and
demographic conditions in the market. In the event the General Partner
determines an impairment in value has occurred, and the carrying amount of the
real estate asset will not be recovered, a provision is 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
the property's fair value, unless other factors affecting the property's value
indicate otherwise.
(c) Deferred expenses consist of financing fees which are amortized over the
term of the respective agreement.
(d) The Financial Accounting Standard Board's Statement No. 107, "Disclosures
About Fair Value of Financial Instruments", requires disclosure of fair value
information about financial instruments for which it is practicable to estimate
that value. Since quoted market prices are not available for the Partnership's
financial instruments, fair values have been based on estimates using present
value techniques. These techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, may not be realized in
immediate settlement of the instrument. Statement No. 107 does not apply to all
balance sheet items and excludes certain financial instruments and all
non-financial instruments such as real estate and investment in joint ventures
from its disclosure requirements.
(e) Revenue is recognized on an accrual basis in accordance with generally
accepted accounting principles.
<PAGE>
(f) Cash and cash equivalents include all unrestricted, highly liquid
investments with an original maturity of three months or less.
(g) 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.
3. Partnership Agreement:
The Partnership was organized in September 1991. The General Partner is Lake
Sun Partners, Inc. and the limited partners are Balcor Pension Investors - VI
and Balcor Preferred Pension - 12 A Real Estate Limited Partnership. The
Partnership's results of the operations are allocated 99% to the Limited
Partners and 1% to the General Partner.
4. Mortgage Note Payable:
In October 1995, the underlying revenue bonds which financed the Sun Lake
Apartments $15,700,000 mortgage note payable, were refunded. The proceeds from
the new bonds were used to repay the prior bonds. The interest rate increased
from 4.5% to 5.375%. The prior bonds were secured by a letter of credit for a
fee of 1.7% annually. The new bonds require payment of guarantee and servicing
fees totaling .975% annually. The monthly principal and interest payment due on
the new bonds is $99,080. The maturity date of the bonds is October 2025 with
the next mandatory remarketing date being October 2005. The mortgage note
payable had a balance of $15,657,066 at December 31, 1995. The $700,000 debt
service reserve account, plus accrued interest, was released as part of the
refunding.
Real estate held for sale with an aggregate carrying value of $21,885,000 at
December 31, 1995 was pledged as collateral for repayment of this mortgage
note.
Future annual maturities of the above mortgage note payable during each of the
next five years are approximately as follows:
1996 $ 179,000
1997 191,000
1998 204,000
1999 217,000
2000 232,000
During the year ended December 31, 1995, the Partnership incurred interest
expense on the mortgage note payable of $959,064 and paid interest expense of
$1,020,529.
5. Management Agreement:
As of December 31, 1995, the property is under a management agreement with a
third-party management company. The management agreement provides for an annual
fee of 5% of gross operating receipts of the property.
6. Fair Values of Financial Instruments:
The carrying amounts and fair values of the Partnership's financial instruments
at December 31, 1995 are as follows:
<PAGE>
The carrying value of cash and cash equivalents and accounts payable
approximates fair value.
Mortgage notes payable: The fair value for the Partnership's mortgage note
payable is $13,675,375 and the carrying value is $15,657,066. The fair value of
the mortgage note payable was estimated using discounted cash flow analysis
based on borrowing rates available to the Partnership at the end of 1995 for
mortgage loans with similar terms and maturities.
<PAGE>
LAKE SUN PARTNERS LIMITED PARTNERSHIP
Report of Independent Auditors
Financial Statements:
Balance Sheet, December 31, 1994
Statement of Income and Expenses and Partners' Capital, for the year ended
December 31, 1994
Statement of Cash Flows, for the year ended December 31, 1994
Notes to Financial Statements
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners of
Lake Sun Partners Limited Partnership
We have audited the accompanying balance sheet of Lake Sun Partners Limited
Partnership (An Illinois Limited Partnership) as of December 31, 1994 and the
related statements of income and expenses and partners' capital and cash flows
for the year then ended. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lake Sun Partners Limited
Partnership (An Illinois Limited Partnership) at December 31, 1994 and the
results of its operations and its cash flows for the year then ended in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Chicago, Illinois
March 22, 1995
<PAGE>
LAKE SUN PARTNERS LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEET
December 31, 1994
ASSETS
(As Restated)
Cash and cash equivalents $ 109,053
Restricted investment 700,000
Accounts receivable 125,000
Escrow deposits 11,889
Deferred expenses (net of accumulated
amortization of $13,083) 65,417
------------
1,011,359
Real estate held for sale: ------------
Land 3,801,490
Structures (net of allowance of $1,800,000) 19,083,510
------------
22,885,000
------------
Total assets $ 23,896,359
============
LIABILITIES AND PARTNERS' CAPITAL
Accounts and accrued interest payable $ 106,150
Security deposits 96,180
Mortgage note payable 15,700,000
------------
Total liabilities 15,902,330
Partners' capital 7,994,029
------------
Total liabilities and partners' capital $ 23,896,359
============
The accompanying notes are an integral part of the financial statements.
<PAGE>
LAKE SUN PARTNERS LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENT OF INCOME AND EXPENSES AND PARTNERS' CAPITAL
for the year ended December 31, 1994
(As Restated)
Income:
Rental $ 3,476,440
Service 116,224
-------------
Total income 3,592,664
-------------
Expenses:
Interest expense 1,343,014
Amortization 71,833
Property operating 1,256,634
Repairs and maintenance 250,865
Real estate taxes 297,642
Property management fees 164,533
Provision for potential losses on real estate 1,800,000
-------------
Total expenses 5,184,521
-------------
Net loss (1,591,857)
Partners' capital at beginning of the year 9,687,586
Distributions to partners (192,161)
Contributions from partners 90,461
-------------
Partners' capital at end of year $ 7,994,029
=============
The accompanying notes are an integral part of the financial statements.
<PAGE>
LAKE SUN PARTNERS LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENT OF CASH FLOW
for the year ended December 31, 1994
Operating activities: (As Restated)
Net loss $(1,591,857)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Provision for potential losses on real estate 1,800,000
Amortization of deferred expenses 71,833
Net change in:
Accounts receivable (125,000)
Accounts and accrued interest payable 58,767
Due to affiliates (14,402)
Security deposits (11,475)
-----------
Net cash provided by operating activities 187,866
-----------
Financing activities:
Distributions to Partners (192,161)
Contributions from Partners 90,461
Payment of deferred expenses (78,500)
-----------
Net cash used in financing activities (180,200)
-----------
Net cash in cash equivalents 7,666
Cash and cash equivalents at beginning of period 101,387
-----------
Cash and cash equivalents at end of year $ 109,053
===========
The accompanying notes are an integral part of the financial statements.
<PAGE>
LAKE SUN PARTNERS LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policies:
(a) At January 1, 1994, partners capital has been increased by
$1,340,196, real estate held for sale has been increased by
$1,541,986 and cash and cash equivalents has been decreased by
$201,790 for corrections made from amounts previously reported.
At December 31, 1994, partners capital and cash and cash
equivalents have been decreased by an additional $101,700 for
corrections made from amounts previously reported.
(b) The Partnership records real estate held for sale at the lower
of cost or fair value, and periodically assesses possible
impairment to the value of its property. Determinations of
fair value represent estimations based on many variables which
affect the value of real estate, including economic and
demographic conditions. An allowance for loss is recorded when
a decline in the value of the property owned is believed to be
temporary. Impairment in value considered to be permanent
results in the direct writedown of the property's carrying
value to its estimated fair value. The Partnership recognized
a provision of $1,800,000 in 1994 to providefor a decline in
the fair value of the property.
(c) Deferred expenses consist of financing fees which are
amortized on a straight-line basis over the term of the loan.
(d) Cash equivalents include all highly liquid investments with a
maturity of three months or less when purchased.
(e) The Partnership is not liable for Federal income taxes and
each partner recognizes his proportionate share of the
Partnership's income or loss in his tax return; therefore, no
provision for income taxes is made in the financial statements
of the Partnership.
2. Partnership Agreement:
The Partnership was organized in September 1991. The general partner is
Lake Sun Partners, Inc. and the limited partners are Balcor Pension
Investors - VI and Balcor Preferred Pension - 12. The Partnership's
results of operations are allocated 99% to the limited partners and 1%
to the general partner.
3. Restricted Investment:
In April 1992, a debt service reserve account of $700,000 was
established as additional collateral for obligations related to the
mortgage loan, pursuant to the settlement agreement reached in December
1991. The funds are invested in short-term interest bearing instruments
and interest earned on the investments is payable to the limited
partners. The funds will be released once certain terms and conditions
of the loan agreement are met. The November 1994 re-marketing of the
<PAGE>
underlying revenue bonds relating to this loan did not change the terms
of the reserve agreement.
4. Mortgage Note Payable:
The mortgage loan is financed with underlying revenue bonds. Principal
and interest payments due on the mortgage loan reflect payments due to
the bondholders. In November 1994, the Partnership re-marketed these
bonds, which reduced the interest rate of the loan from 7.625% to 4.5%
effective November 1, 1994. The interest rate will remain constant
until November 1, 1995, the next re-marketing date of the bonds. The
bonds may be redeemed, at par plus accrued interest, on this date and on
subsequent dates prior to maturity pursuant to the terms of the bond
indenture. The bonds are secured by an irrevocable letter of credit.
In connection with the re-marketing, the letter of credit was reduced to
approximately $16,131,750 and extended one additional year to November
1, 1995. The Partnership will need to replace the letter of credit or
find an alternate credit facility for the bonds as of such date. The
Partnership will pay a fee of approximately 1.7% on the letter of credit
balance. In addition, beginning November 1, 1994, the Partnership is
required to remit excess cash flow payments to the letter of credit
provider to be held in trust for future re-marketing expenditures.
Unless there is a prior redemption of all or part of the bonds, the
entire principal balance of the loan will be due on November 1, 1997.
Monthly interest payments of $58,875 are due until maturity. Real
estate held for sale with an aggregate carrying value of $22,885,000 at
December 31, 1994 was pledged as collateral for repayment of this
mortgage note. During the year ended December 31, 1994, the Partnership
incurred interest expense on the mortgage note payable of $1,343,014 and
paid interest expense of $1,281,549.
5. Management Agreement:
As of December 31, 1994, the property is under a management agreement
with a third-party management company. The management agreement
provides for an annual fee of 5% of gross operating receipts of the
property. Allegiance Realty Group, Inc., an affiliate of the General
Partner, managed the property and earned fees totaling $149,849 until
the affiliate was sold to a third party in November 1994.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 3062
<SECURITIES> 0
<RECEIVABLES> 7328
<ALLOWANCES> 545
<INVENTORY> 0
<CURRENT-ASSETS> 3117
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 15192
<CURRENT-LIABILITIES> 96
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 15095
<TOTAL-LIABILITY-AND-EQUITY> 15192
<SALES> 0
<TOTAL-REVENUES> 1041
<CGS> 0
<TOTAL-COSTS> 72
<OTHER-EXPENSES> 984
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (16)
<INCOME-TAX> 0
<INCOME-CONTINUING> (16)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16)
<EPS-PRIMARY> (0.18)
<EPS-DILUTED> (0.18)
</TABLE>
