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, 1996
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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
----
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. During 1996, the Registrant's operations consisted of
an investment in one participating first mortgage loan and two joint venture
investments in real properties. All financial information included in this
report relates to this industry segment.
The Registrant originally funded four loans. In prior years, one loan was
repaid and two loans were foreclosed on resulting in the Registrant acquiring
joint venture interests in two properties. During 1996, the remaining loan and
the two properties in which the Registrant held joint venture interests were
sold. (See "Item 7. Liquidity and Capital Resources" for additional
information.)
Pursuant to the Partnership Agreement, when all interests in loans or real
estate are sold or otherwise disposed of and the General Partner determines
there are no remaining contingencies, the Registrant will be dissolved.
Therefore, the General Partner commenced liquidation of the Registrant, and on
December 31, 1996, the Registrant's registration under the Securities Exchange
Act of 1934 was terminated. In February, 1997 after payment of a final
distribution to the Limited Partners, the Registrant was dissolved.
The officers and employees of Balcor Mortgage Advisors-VIII, the General
Partner of the Registrant, and its affiliates performed services for the
Registrant. The Registrant had no employees engaged in its operations.
Other Information
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Sun Lake Apartments
- -------------------
As previously reported, on October 30, 1996, a limited partnership (the
"Limited Partnership") in which the Partnership and an affiliate hold interests
and which owns Sun Lake Apartments, Lake Mary, Florida, contracted to sell the
property to an unaffiliated party, Ambassador Apartments, a Delaware
corporation, for a sale price of $24,000,000. The purchaser assigned its rights
under the agreement of sale to an affiliate, Ambassador III, L.P., and the sale
closed on November 20, 1996. The purchaser assumed the existing first mortgage
loan which had an outstanding principal balance of $15,508,832 at closing.
From the proceeds of the sale, the Limited Partnership paid closing costs of
$221,215, $300,000 to a third party as a brokerage commission and $180,000 to
an affiliate of the third party providing property management services for the
property as a fee for services rendered in connection with the sale of the
property. The Limited Partnership received the remaining proceeds of
$7,789,953, of which the Partnership's share was $2,964,077.
<PAGE>
Item 2. Properties
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The Registrant no longer owns any interest in physical 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 were the
defendants. The complaint alleged 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 alleged breach of
fiduciary duty, fraud, negligence and violations under the Racketeer Influenced
and Corrupt Organizations Act. The complaint sought compensatory and punitive
damages.
A settlement of these proceedings was approved by the District Court on
November 20, 1996 on the terms previously described in the form of a settlement
agreement attached as Exhibit 99 to the Registrant's Report on Form 10-Q for
the quarter ended June 30, 1996. Distributions to be paid pursuant to the
settlement were paid in December 1996. All proceedings relating to this matter
are now dismissed.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
No matters were submitted to a vote of the Limited Partners of the Registrant
during 1996.
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
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Matters
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On December 31, 1996, the Registrant's registration under the Securities
Exchange Act of 1934 was terminated. The Registrant was dissolved in February
1997.
As of December 31, 1996, the number of record holders of Limited
Partnership Interests of the Registrant was 3,995. For information regarding
previous distributions, see Financial Statements, Statements of Partners'
Capital, and Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources, below.
Item 6. Selected Financial Data
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Year ended December 31,
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1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
Total income $ 703,374 $1,040,598 $1,297,345 $1,423,424 $1,754,658
Provision for losses
on loans and accrued
interest receivable 623,367 None None None 950,000
Income (loss) before
extraordinary items 771,280 (15,949) 320,140 1,057,775 (350,533)
Net income (loss) 486,726 (15,949) 320,140 1,057,775 (350,533)
Net income (loss)
per Limited
Partnership
Interest 1.80 (0.18) 1.01 3.52 (1.19)
Total assets 409,791 15,191,890 16,930,247 20,515,424 20,605,925
Distributions per
Limited Partnership
Interest (A) 51.83(B)(C) 5.79 13.30 3.60 5.20
(A) These amounts include distributions of original capital of $47.83, $.89
and $10.00 per Limited Partnership Interest for the years 1996, 1995 and
1994, respectively.
(B) In addition, a special distribution of $0.33 per Interest was paid to
class members including certain current investors in the Partnership
pursuant to the settlement of a class action lawsuit.
(C) In addition, a final distribution of $1.40 per Interest was paid to
Limited Partners in February 1997.
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
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Results of Operations
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Operations
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Summary of Operations
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Balcor Preferred Pension - 12 A Real Estate Limited Partnership (the
"Partnership") recognized its share of the gain resulting from the sale of the
45 West 45th Street Office Building and the recoveries of previously
established allowances for losses resulting from the sales of the 45 West 45th
Street Office Building and the Sun Lake Apartments. The Partnership also
recognized a provision for loss related to the Noland Fashion Square loan sale
in 1996. In addition, the Partnership recognized its share of provisions for
losses during 1995 and 1994 relating to the change in the estimates of the fair
values of the properties in which it held joint venture interests. These gains
and losses are reflected in participation in joint ventures with affiliates in
the financial statements. The combined effect of these events resulted in net
income during 1996 as compared to a net loss during 1995, and net loss during
1995 as compared to net income during 1994. Further discussion of the
Partnership's operations is summarized below.
1996 Compared to 1995
- ---------------------
Due to the sale of the Noland Fashion Square loan in August 1996, interest
income on this loan decreased during 1996 as compared to 1995.
Lower average balances in 1996 due to special distributions made to the
Limited Partners in July 1995 and April 1996 caused interest income on
short-term investments to decrease during 1996 as compared to 1995.
The Partnership incurred higher consulting, legal, printing and postage costs
in connection with its response to two tender offers during 1996. As a result,
administrative expenses increased during 1996 as compared to 1995.
Provisions were charged to income when the General Partner believed an
impairment had occurred to the value of its joint venture properties, the
borrower's ability to repay the loan or the value of the collateral
property. Determinations of fair value were made periodically on the basis of
performance under the terms of the loan agreement and assessments of property
operations. Determinations of fair value represented estimations based on many
variables which affect the value of real estate, including economic and
demographic conditions. The Partnership recognized a provision for loan loss of
$623,367 related to the Noland Fashion Square loan during 1996. The allowance
of $545,000 was also written off in connection with the sale of this loan. The
Partnership did not recognize any provisions during 1995 on this loan. During
1995, the Partnership recognized provisions totaling $918,000 related to its
joint venture interests in real estate held for sale to provide for changes in
the estimates of the fair values of the properties. The Partnership did not
recognize any such provisions during 1996.
<PAGE>
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. The Partnership recognized recoveries of previously
established allowances for losses due to the sales of both properties and a
gain on the sale of the 45 West 45th Street Office Building in 1996. In
addition, provisions for losses for both properties were recognized in 1995. As
a result, the Partnership recognized participation in income of joint ventures
with affiliates during 1996 as compared to participation in loss during 1995.
The Noland Fashion Square loan was recorded by the Partnership as an investment
in acquisition loan. The Partnership recorded its share of the collateral
property's operations as equity in loss from investment in acquisition loan.
The Partnership's share of operations had no effect on the cash flow of the
Partnership. Amounts representing contractually required debt service were
recorded as interest income on the loan. As a result of the sale of the Noland
Fashion Square loan in August 1996, the equity in the loss from investment in
acquisition loan decreased during 1996 as compared to 1995.
During 1996, the Partnership recognized its share of extraordinary debt
extinguishment expenses related to the sale of Sun Lake Apartments of $284,554.
1995 Compared to 1994
- ---------------------
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.
The Partnership did not recognize provisions during 1995 or 1994 related to its
loans. In 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 in order to provide for
changes in the estimated fair value of the properties.
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.
<PAGE>
Liquidity and Capital Resources
- --------------------------------
The cash position of the Partnership fluctuated during the year and a final
distribution was made to the Limited Partners in February 1997 as discussed
below. The Partnership's cash flow provided by operating activities was
approximately $260,000 and consisted of the mortgage payments from the loan
receivable and interest income earned on short-term investments, which were
partially offset by the payment of administrative expenses. The Partnership's
cash flow provided by investing activities of approximately $12,260,000
represented the net proceeds from the sale of the Noland Fashion Square loan
and net capital distributions received from the joint ventures. These net
capital distributions included the Partnership's share of the proceeds from the
sales of the properties. The cash flow used in financing activities of
approximately $15,172,000 consisted of distributions to the Partners and
capital contributions by the General Partner. See Notes 4 and 6 of Notes to the
Financial Statements for additional information regarding the loan sale and the
sales of properties in which the Partnership held a joint venture interest.
Pursuant to the Partnership Agreement, when all interests in real estate and
loans are sold or otherwise disposed of and the General Partner determines
there are no remaining contingencies, the Partnership will be dissolved.
Therefore, the General Partner commenced liquidation of the Partnership.
During 1996, the Partnership sold its remaining loan and its two joint venture
interests in properties. During December 1996, a distribution of $6,805,461
($23.25 per Interest) was made to Limited Partners primarily from the
Partnership's share of the proceeds from the sales of the Sun Lake Apartments
and the 45 W. 45th Street Office Building. This distribution also included a
liquidating contribution of $5,875 from the General Partner. On December 31,
1996, the Partnership's registration under the Securities Exchange Act of 1934
was terminated. The Partnership was terminated in the state of Illinois on
December 31, 1996. After retaining approximately $82,000 to pay the final
administrative expenses of the Partnership, a final distribution of $409,791
($1.40 per Interest) was made to the Limited Partners in February 1997, which
represents all remaining cash reserves and the Partnership was dissolved.
Since inception, the Limited Partners have received distributions of Cash Flow
of $41.92 and Mortgage Reductions of $61.20, totaling $103.12 per $100
Interest. Since inception, the General Partner received distributions of Cash
Flow totaling $294,378 from the Partnership.
In December 1996, the General Partner made a settlement payment of $96,809
($0.33 per $100 Interest) to members of the class pursuant to the settlement
approved by the court in November 1996 in the Paul Williams and Beverly
Kennedy, et al, v. Balcor Pension Investors, et al class action lawsuit. The
General Partner made a contribution of $107,566 to the Partnership of which the
plaintiff's counsel received $10,757 pursuant to the settlement agreement. Of
the total settlement amount, $84,633 was paid to original investors who held
their Limited Partnership Interests at the date of the settlement and
was recorded as a distribution to Limited Partners in the Financial Statements.
The remaining portion of the settlement of $12,176 was paid to original
investors who previously had sold their Interests in the Partnership. This
amount was recorded as an administrative expense in the Financial Statements.
<PAGE>
Item 8. Financial Statement and Supplementary Data
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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
each of the two fiscal years ended December 31, 1994 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 James E. Mendelson
Senior Vice President John K. Powell, Jr.
Managing Director, Chief Jayne A. Kosik
Financial Officer, Treasurer
and Assistant Secretary
Thomas E. Meador (age 49) 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 (age 42) 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.
James E. Mendelson (age 34) joined Balcor in July 1984 and is responsible for
Balcor's property sales activities. He also has supervisory responsibility for
Balcor's accounting, financial, treasury, investor services and investment
administration functions. From 1989 to 1995, Mr. Mendelson was Vice President -
Transaction Management and Vice President - Senior Transaction Manager and had
responsibility for various asset management matters relating to real estate
investments made by Balcor, including negotiations for the restructuring of
mortgage loan investments. Mr. Mendelson received his M.B.A. degree from the
University of Chicago.
John K. Powell, Jr. (age 46) 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
function. 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.
<PAGE>
Jayne A. Kosik (age 39) joined Balcor in August 1982 and, as Chief Financial
Officer, is responsible for Balcor's financial, human resources and treasury
functions. From June 1989 until October 1996, Ms. Kosik had supervisory
responsibility for accounting functions relating to Balcor's public and private
partnerships. She is also Treasurer and a Managing Director of The Balcor
Company. Ms. Kosik is a Certified Public Accountant.
(d) There is no family relationship between any of the foregoing officers.
(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 1996.
Item 11. Executive Compensation
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The Registrant paid $1,081 in 1996 with respect to one of the executive
officers of Balcor Mortgage Advisors-VIII, the General Partner. The Registrant
has not paid and does not propose to pay any remuneration to the remaining
executive officers of the General Partner. Certain of the remaining 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) The following entity is the sole Limited Partner which owned beneficially
more than 5% of the outstanding Limited Partnership Interests of the
Registrant.
Name and Amount and
Address of Nature of Percent
Beneficial Beneficial of
Title of Class Owner Ownership Class
- ---------------- ----------- ----------- -------
Limited Engineers 21,500.00 7.35%
Partnership Joint Pension Limited
Interests Fund Partnership
Syracuse, Interests
New York
(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.
<PAGE>
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 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.
(10) Material Contracts:
(a)(i) Amendment to Agreement of Sale dated July 29, 1996 relating to the sale
of 45 West 45th Street Office Building previously filed as Exhibit 10(a) to the
Registrant's Report on Form 10-Q for the quarter ended June 30, 1996, is
incorporated herein by reference.
(ii) First Amendment to the Agreement of Sale dated August 12, 1996 relating
to the sale of 45 West 45th Street Office Building previously filed as Exhibit
10(a)(ii) to the Registrant's Report on Form 10-Q for the quarter ended
September 30, 1996, is incorporated herein by reference.
(b) Agreement of Sale dated August 8, 1996 relating to the sale of the loan
collateralized by the Noland Fashion Square previously filed as Exhibit 10(b)
to the Registrant's Report on Form 10-Q for the quarter ended June 30, 1996, is
incorporated herein by reference.
(c) Agreement of Sale dated October 30, 1996 relating to the sale of Sun Lake
Apartments previously filed as Exhibit 10(c) to the Registrant's Report on Form
10-Q for the quarter ended September 30, 1996, is 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.
<PAGE>
(27) Financial Data Schedule of the Registrant for 1996 is attached hereto.
(99) Form of Notice of Proposed Class Action Settlement and Hearing relating to
Paul Williams and Beverly Kennedy, et al. vs. Balcor Pension Investors, et al.,
previously filed as Exhibit (99) to the Registrant's Report on Form 10-Q for
the quarter ended June 30, 1996 is incorporated herein by reference.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter
ended December 31, 1996.
(c) Exhibits: See Item 14(a)(3) above.
(d) Financial Statement Schedules:
See Index to Financial Statements in this Form 10-K.
See Indexes to the 1996 and 1995 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/Jayne A. Kosik
-----------------------------
Jayne A. Kosik
Managing Director and Chief
Financial Officer (Principal Accounting
Officer) of Balcor Mortgage
Advisors-VIII, the General Partner
Date: March 31, 1997
--------------
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 of Balcor Mortgage
Advisors-VIII, the General
/s/Thomas E. Meador Partner March 31, 1997
- -------------------- --------------
Thomas E. Meador
Managing Director and Chief
Financial Officer (Principal
Accounting Officer)
of Balcor Mortgage Advisors-VIII,
/s/Jayne A. Kosik the General Partner March 31, 1997
- ------------------- --------------
Jayne A. Kosik
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants
Report of Independent Auditors
Financial Statements:
Balance Sheets, December 31, 1996 and 1995
Statements of Partners' Capital, for the years ended December 31, 1996, 1995
and 1994
Statements of Income and Expenses, for the years ended December 31, 1996, 1995
and 1994
Statements of Cash Flows, for the years ended December 31, 1996, 1995 and 1994
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 sheets of Balcor Preferred Pension-12
A Real Estate Limited Partnership (An Illinois Limited Partnership) as of
December 31, 1996 and 1995 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, 1996. 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 1995
financial statements of the Noland Fashion Square Partnership, owner of the
shopping center known as Noland Fashion Square (the "Property"), which
collateralized the acquisition loan receivable held by the Partnership. The
acquisition loan receivable represented 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 1995 financial
statements of the Noland Fashion Square 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 for the year ended December 31,
1995 in which the Partnership held 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 with respect to 1995 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, 1996 and 1995, and the results of its operations and its cash flows for
each of the two years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
As described in Note 1 to the financial statements, the Partnership Agreement
provides for the dissolution of the Partnership upon the sale of all its
interests in real estate. At December 31, 1996, the Partnership had disposed
of all its real estate assets, and in February, 1997 was dissolved.
/s/Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 28, 1997
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners of
Balcor Preferred Pension-12
A Real Estate Limited Partnership:
We have audited the accompanying statements of partners' capital, income and
expenses and cash flows of Balcor Preferred Pension-12 A Real Estate Limited
Partnership (An Illinois Limited Partnership) for the year 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 audit. 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 acquisition loan. The Partnership's equity in loss
related to the Property was $64,582 in 1994. 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 the 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 provides a reasonable basis for our opinion.
In our opinion, based on our audit and the report of other auditors, the
financial statements referred to above present fairly, in all material
respects, the results of operations and cash flows of Balcor Preferred
Pension-12 A Real Estate Limited Partnership for the year ended December 31,
1994, in conformity with generally accepted accounting principles.
/s/Ernst & Young LLP
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, 1996 and 1995
ASSETS
1996 1995
------------ ------------
Cash and cash equivalents $ 409,791 $ 3,062,342
Accounts and accrued interest receivable 54,970
------------ ------------
409,791 3,117,312
------------ ------------
Investment in acquisition loan receivable 7,817,596
Less:
Allowance for potential loan losses 545,000
------------
Net investment in acquisition loan receivable 7,272,596
Investment in joint ventures - affiliates 4,801,982
------------
12,074,578
------------ ------------
$ 409,791 $ 15,191,890
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 82,545
Due to affiliates 13,952
------------
Total liabilities 96,497
Commitments and contingencies
Limited Partners' capital (292,708 Interests
issued and outstanding) $ 409,791 15,137,296
General Partner's deficit (41,903)
------------ ------------
Total partners' capital 409,791 15,095,393
------------ ------------
$ 409,791 $ 15,191,890
============ ============
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, 1996, 1995 and 1994
Partners' Capital (Deficit) Accounts
----------------------------------------
General Limited
Total Partner Partners
------------ ----------- ------------
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
Cash distributions (A) (15,285,769) (30,081) (15,255,688)
Cash contributions 113,441 113,441
Net income (loss) for the year
ended December 31, 1996 486,726 (41,457) 528,183
------------ ----------- ------------
Balance at December 31, 1996 $ 409,791 None $ 409,791
============ =========== ============
(A) Summary of cash distributions paid per Limited Partnership Interest:
1996 1995 1994
------------ ----------- ------------
First Quarter $ 0.60 $ 0.60 $ 0.90
Second Quarter 5.38 0.60 0.90
Third Quarter 0.80 3.99 0.90
Fourth Quarter 45.05 (B) 0.60 10.60
(C)
(B) In addition, a special distribution of $0.33 per Interest was paid
to class members including certain current investors in the Partnership
pursuant to the settlement of a class action lawsuit.
(C) In addition, a final distribution of $1.40 per Interest was paid to
Limited Partners in February 1997.
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, 1996, 1995 and 1994
1996 1995 1994
------------ ----------- ------------
Income:
Interest on loans $ 550,378 $ 823,242 $ 1,117,310
Interest on short-term
investments 152,996 217,356 180,035
------------ ----------- ------------
Total income 703,374 1,040,598 1,297,345
------------ ----------- ------------
Expenses:
Administrative 401,823 292,844 399,995
Provision for loss on loan
receivable 623,367
------------ ----------- ------------
Total expenses 1,025,190 292,844 399,995
------------ ----------- ------------
(Loss) income before
participation in income (loss)
of joint ventures - affiliates,
equity in loss from investment
in acquisition loan, and
extraordinary item (321,816) 747,754 897,350
Participation in income (loss)
of joint ventures - affiliates 1,141,291 (691,409) (512,628)
Equity in loss from investment
in acquisition loan (48,195) (72,294) (64,582)
------------ ----------- ------------
Income (loss) before
extraordinary item 771,280 (15,949) 320,140
Extraordinary item:
Participation in debt
extinguishment expense of
joint venture with an
affiliate (284,554)
------------ ----------- ------------
Net income (loss) $ 486,726 $ (15,949)$ 320,140
============ =========== ============
(Loss) income before
extraordinary item allocated
to General Partner $ (38,611) $ 36,776 $ 24,768
============ =========== ============
Income (loss) before
extraordinary item allocated
to Limited Partners $ 809,891 $ (52,725)$ 295,372
============ =========== ============
Income (loss) before
extraordinary item per Limited
Partnership Interest (292,708
issued and outstanding) $ 2.76 $ (0.18)$ 1.01
============ =========== ============
<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, 1996, 1995 and 1994
(Continued)
Extraordinary item allocated
to General Partner $ (2,846) None None
============== =========== ============
Extraordinary item allocated
to Limited Partners $ (281,708) None None
============== =========== ============
Extraordinary item per Limited
Partnership Interest (292,708
issued and outstanding) $ (0.96) None None
============== =========== ============
Net (loss) income allocated to
General Partner $ (41,457) $ 36,776 $ 24,768
============== =========== ============
Net income (loss) allocated to
Limited Partners $ 528,183 $ (52,725)$ 295,372
============== =========== ============
Net income (loss) per Limited
Partnership Interest (292,708
issued and outstanding) $ 1.80 $ (0.18)$ 1.01
============== =========== ============
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, 1996, 1995 and 1994
1996 1995 1994
------------ ----------- ------------
Operating activities:
Net income (loss) $ 486,726 $ (15,949)$ 320,140
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Equity in loss from
investment in acquisition
loan 48,195 72,294 64,582
Participation in (income)
loss of joint ventures -
affiliates (1,141,291) 691,409 512,628
Participation in debt
extinguishment expense of
joint venture with an
affiliate 284,554
Provision for loss on loan
receivable 623,367
Accrued interest income
due at maturity of loan (7,196)
Collection of accrued
interest income due at
maturity 132,966
Net change in:
Escrow deposits -
restricted 11,168
Accounts and accrued
interest receivable 54,970 5,807 41,167
Accounts payable (82,545) 38,157 5,314
Due to affiliates (13,952) (29,009) 29,426
Escrow liabilities (22,273)
------------ ----------- ------------
Net cash provided by operating
activities 260,024 762,709 1,087,922
------------ ----------- ------------
Investing activities:
Collection of principal payment
on loan receivable 5,250,000
Proceeds from sale of loan
receivable 6,694,415
<PAGE>
BALCOR PREFERRED PENSION-12
A REAL ESTATE LIMITED PARTNERSHIP
(AN ILLINOIS LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1996, 1995 and 1994
(Continued)
Costs incurred in connection
with sale of loan receivable $ (93,381)
Capital contributions to joint
ventures - affiliates (265,613) $ (569,417)
Distributions from joint
ventures - affiliates 5,924,332 344,222 $ 192,160
------------ ----------- ------------
Net cash provided by or (used
in) investing activities 12,259,753 (225,195) 5,442,160
------------ ----------- ------------
Financing activities:
Distributions to Limited
Partners (15,255,688) (1,694,780) (3,893,016)
Distributions to General
Partner (30,081) (36,776) (24,768)
Contributions by General
Partner 113,441
------------ ----------- ------------
Net cash used in financing
activities (15,172,328) (1,731,556) (3,917,784)
------------ ----------- ------------
Net change in cash and cash
equivalents (2,652,551) (1,194,042) 2,612,298
Cash and cash equivalents at
beginning of year 3,062,342 4,256,384 1,644,086
------------ ----------- ------------
Cash and cash equivalents at
end of year $ 409,791 $ 3,062,342 $ 4,256,384
============ =========== ============
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. Partnership Termination:
Pursuant to the Partnership Agreement, when all interests in real estate and
loans are sold or otherwise disposed of and the General Partner determines
there are no remaining contingencies, the Partnership will be dissolved. During
1996, the Partnership sold its remaining loan and its two joint venture
interests in properties. During December 1996, a distribution of $6,805,461
($23.25 per Interest) was made to Limited Partners primarily from the
Partnership's share of the proceeds from the sales of the Sun Lake Apartments
and the 45 W. 45th Street Office Building. This distribution also included a
liquidating contribution of $5,875 from the General Partner. On December 31,
1996, the Partnership's registration under the Securities Exchange Act of 1934
was terminated. The Partnership was terminated in the state of Illinois on
December 31, 1996. After retaining approximately $82,000 to pay the final
administrative expenses of the Partnership, a final distribution of $409,791
($1.40 per Interest) was made to the Limited Partners in February 1997, which
represents all remaining cash reserves and the Partnership was dissolved.
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 was recorded as earned in accordance with the terms of the
related loan agreements. The accrual of interest was discontinued when a loan
became ninety days contractually delinquent or sooner when, in the opinion of
the General Partner an impairment had occurred in the value of the collateral
property securing the loan. Income on nonaccrual loans or loans which were
otherwise not performing in accordance with their terms was recorded on a cash
basis.
(c) Loan losses on the acquisition loan were charged to income and an allowance
account was established when the General Partner believed the loan balance
would not be recovered. The General Partner assessed 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 represented the mortgage loan which, because
the loan agreement included certain specified terms, was accounted for as an
investment in a real estate venture. The investment was therefore reflected in
the accompanying financial statements using the equity method of accounting.
Under this method, the Partnership recorded its investment at cost
(representing total loan funding), and subsequently adjusted its investment for
its share of the collateral property's income or loss.
<PAGE>
Amounts representing contractually-required debt service were recorded in the
accompanying Statements of Income and Expenses as interest income. Equity in
loss from investment in acquisition loan represented the Partnership's share of
the collateral property operations, including depreciation and interest
expense. The Partnership's share of operations had no effect on cash flow of
the Partnership.
(e) Investment in joint ventures - affiliates represented the Partnership's
interest, under the equity method of accounting, in the joint ventures with
affiliates. Under the equity method of accounting, the Partnership recorded its
initial investments at cost and adjusted its investment accounts for additional
capital contributions, distributions and its share of each joint venture's
income or loss.
(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 were not available for the Partnership's
financial instruments, fair values were based on estimates using present value
techniques. These techniques were significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates could not be substantiated by
comparison to independent markets and, in many cases, would 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. Cash is held or
invested in one financial institution.
(h) The Partnership was not liable for Federal income taxes and each partner
recognized his proportionate share of the Partnership income or loss in his tax
return; therefore, no provision for income taxes was made in the financial
statements of the Partnership.
(i) For financial statement purposes, in previous years partners were
allocated income and loss in accordance with the provisions in the Partnership
Agreement. In order for the capital accounts of the General Partner and
Limited Partners to appropriately reflect their respective remaining economic
interests as provided for in the Partnership Agreement, the General Partner was
allocated additional loss in 1996 for financial statement purposes.
3. Partnership Agreement:
The Partnership was organized on July 15, 1987. The Partnership Agreement
provided 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 were
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 were allocated
99% to the Limited Partners and 1% to the General Partner.
<PAGE>
To the extent available, Cash Flow was distributed as follows: (i) 95% was paid
to the holders of Interests and (ii) 5% was paid to the General Partner. Up to
50% of the General Partner's share of Cash Flow was utilized to pay to the
Limited Partners any deficiency in the Warranty Distribution of 8% per annum.
4. Sale of Acquisition Loan Receivable:
The Partnership and two affiliates funded the $23,300,000 Noland Fashion Square
loan in 1989. The Partnership participated ratably in approximately 38% of the
loan, interest income and participation income. In August 1996, the loan was
sold and the Partnership's share of the sale price was $6,694,415. From the
proceeds of the sale, the Partnership paid $93,381 as its share of the selling
costs. The carrying value of the Partnership's share of the loan was
$7,769,401, and the remaining loan balance was written off.
5. Allowances for Losses on Loan:
Activity recorded in the allowances for losses on loan during the three years
ended December 31, 1996 is described in the table below.
1996 1995 1994
------------ ----------- -----------
Loan:
Balance at beginning of
year $ 545,000 $ 545,000 $ 545,000
Direct write-off of loan
against allowance (545,000) None None
----------- ----------- -----------
Balance at the end of the year None $ 545,000 $ 545,000
=========== =========== ===========
The Partnership recognized an additional provision of $623,367 during the year
ended December 31, 1996 prior to the sale of the loan.
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
were allocated in accordance with the participants' original funding
percentages. The Partnership's ownership percentage was 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. In addition, during 1996, 1995 and 1994 the
Partnership received distributions from this joint venture totaling $3,623,522,
$165,500 and $192,160, respectively. The Partnership also made contributions of
$242,854 and $279,122 in 1996 and 1995, respectively.
In November 1996, the joint venture sold the property in an all cash sale for
$24,000,000. The purchaser took title subject to the existing first mortgage
loan in the amount of $15,508,832. From the proceeds of the sale, the joint
venture paid $701,215 in selling costs. The joint venture recognized a
recovery of a previously established allowance for losses of $1,413,785 from
the sale of this property, of which $347,159 is the Partnership's share.
<PAGE>
(b) In 1995, the Partnership and three affiliates acquired title to the 45 West
45th Street Office Building. Profits and losses, all capital contributions and
distributions were allocated in accordance with the participants' original
funding percentages. The Partnership's ownership percentage was 21.74%. During
1995, the Partnership recognized a loss of $537,630 as its share of the
provision relating to the change in the estimate of the fair value of the
property. In addition, during 1996 and 1995, the Partnership received
distributions of $2,300,810 and $178,722, respectively, from the joint venture.
The Partnership also made contributions of $22,759 and $290,295 during 1996 and
1995, respectively.
In November 1996, the joint venture sold the property in an all cash sale for
$10,300,000. From the proceeds of the sale, the joint venture paid $579,075 in
selling costs. In connection with the sale of the property, the joint venture
recognized a recovery of a previously established allowance for losses of
$2,473,000 and a gain of $461,185. The Partnership's share of these items are
$537,630 and $58,858, respectively.
The following combined information has been summarized from the financial
statements of both of the joint ventures:
1996 1995 1994
------------ ---------- ----------
Net investment in real
estate held for sale
as of December 31 None $ 30,786,840 $ 31,603,406
Total liabilities as
of December 31 None 15,873,390 15,982,056
Total income $ 5,405,391 6,163,884 6,102,755
Income before
provision, recovery of
allowance for losses, gain
on sale and
extraordinary item 552,418 387,474 636,269
Provision for potential
losses None 3,473,000 1,800,000
Recovery of allowance
for losses 3,886,785 None None
Extraordinary item (747,843) None None
Gain on sale 461,185 None None
Net income (loss) 4,152,545 (3,085,526) (1,163,731)
7. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates are:
<PAGE>
Year Ended Year Ended Year Ended
12/31/96 12/31/95 12/31/94
------------------------------------------------
Paid Payable Paid Payable Paid Payable
------ ------- ------ ------- ------ -------
Mortgage servicing fees $15,320 None $23,229 $1,759 $41,264 $ 2,801
Reimbursement of expenses
to the General Partner,
at cost:
Accounting 15,746 None 38,880 3,793 47,471 19,682
Data processing 1,244 None 5,255 331 12,400 2,219
Investor communica-
tions None None 2,053 None 17,127 1,990
Legal 9,953 None 7,356 1,132 3,492 1,622
Other 5,631 None 2,796 None 12,543 2,977
Portfolio management 34,521 None 46,128 6,937 16,903 11,670
The General Partner subordinated receipt of one-half of its share of
distributed Cash Flow, totaling $22,515, $36,776 and $24,768 for the years
ending December 31, 1996, 1995 and 1994, respectively. The General Partner will
not receive any subordinated Cash Flow because the Limited Partners did not
receive certain minimum returns as specified in the Partnership Agreement.
Since the Limited Partners did not receive distributions of Mortgage Reductions
in an amount equal to their original capital contribution, the General Partner
was required to make a final contribution of $5,875 to the Partnership, in
accordance with the Partnership Agreement. The General Partner also made an
additional contribution of $107,566 in connection with the settlement
of certain litigation as further discussed in Note 8 of Notes to Financial
Statements.
8. Settlement of Litigation:
A settlement has received final approval by the court in November 1996 in the
class action, Paul Williams and Beverly Kennedy et. al. v. Balcor Pension
Investors, et. al. upon the terms described in the notice to class members in
September 1996. The General Partner made a contribution of $107,566 to
the Partnership of which the plaintiff's counsel received $10,757 pursuant to
the settlement agreement. In December 1996, the General Partner made a
settlement payment of $96,809 ($0.33 per Interest) to members of the class
pursuant to the settlement. Of the total settlement amount, $84,633 was paid to
original investors who held their Limited Partnership Interests at the date of
the settlement and was recorded as a distribution to Limited Partners
in the Financial Statements. The remaining portion of the settlement of
$12,176 was paid to original investors who previously sold their Interests in
the Partnership. This amount was recorded as an administrative expense in the
Financial Statements. The settlement had no material impact on the
Partnership.
<PAGE>
9. Extraordinary Item:
In connection with the sale of Sun Lake Apartments during 1996, the joint
venture which owned the property fully amortized the remaining deferred
expenses in the amount of $747,843, of which $284,554 represents the
Partnership's share. This amount was recognized as an extraordinary item and
was classified as participation in debt extinguishment expense of joint venture
with an affiliate.
10. Fair Value of Financial Instruments:
The carrying amounts and fair values of the Partnership's financial instruments
at December 31, 1996 and 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 at December 31, 1995 approximated the fair value.
11. Subsequent Event:
In February 1997, the Partnership made a distribution of $409,791 ($1.40 per
Interest) to the holders of Limited Partnership Interests representing the
final distribution at which time the Partnership was dissolved.
<PAGE>
LAKE SUN PARTNERS LIMITED PARTNERSHIP
Report of Independent Accountants
Financial Statements:
Balance Sheet, December 31, 1995
Statements of Income and Expenses and Partners' Capital, for the years ended
December 31, 1996 and 1995
Statements of Cash Flows, for the years ended December 31, 1996 and 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 statements of income and expenses and partners' capital and statements
of cash flows for the years ended December 31, 1996 and 1995. 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 Lake Sun Partners Limited
Partnership at December 31, 1995, and the results of its operations and its
cash flows for the years ended December 31, 1996 and 1995 in conformity with
generally accepted accounting principles.
As described in Note 1 to the financial statements, the Partnership Agreement
provides for the dissolution of the Partnership upon the disposition of all its
interests in real estate. At December 31, 1996 the Partnership had disposed of
all its interests in real estate and, accordingly, has ceased operations and
was dissolved on December 31, 1996.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
March 28, 1997
<PAGE>
LAKE SUN PARTNERS LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
BALANCE SHEET
December 31, 1995
ASSETS
1995
--------------
Cash and cash equivalents $ 94,280
Escrow deposits 552,147
Prepaid expenses 52,289
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)
STATEMENTS OF INCOME AND EXPENSES AND PARTNERS' CAPITAL
for the years ended December 31, 1996 and 1995
1996 1995
-------------- --------------
Income:
Rental $ 3,305,589 $ 3,567,783
Service 119,670 117,783
Interest on short-term investments 17,196 105,311
Recovery of losses on real estate 1,413,785
-------------- --------------
Total income 4,856,240 3,790,877
-------------- --------------
Expenses:
Interest expense 941,895 959,064
Amortization of deferred expenses 23,673 69,721
Property operating 1,503,209 1,698,097
Real estate taxes 283,631 301,211
Property management fees 172,822 183,157
Provision for potential losses
on real estate 1,000,000
-------------- --------------
Total expenses 2,925,230 4,211,250
-------------- --------------
Income (loss) before extraordinary item 1,931,010 (420,373)
Extraordinary item:
Debt extinguisment expense (746,767)
-------------- --------------
Net income (loss) 1,184,243 (420,373)
Partners' capital at beginning of the year
beginning of the year 7,560,492 7,994,029
Distributions to partners (8,744,735) (292,285)
Contributions from partners 279,121
-------------- --------------
Partners' capital at end of year None $ 7,560,492
============== ==============
The accompanying notes are an integral part of the financial statements.
<PAGE>
LAKE SUN PARTNERS LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1996 and 1995
1996 1995
-------------- --------------
Operating activities:
Net income (loss) $ 1,184,243 $ (420,373)
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Recovery of losses on real estate (1,413,785)
Provision for potential losses
on real estate 1,000,000
Amortization of deferred expenses 23,673 69,721
Debt extinguisment expense 746,767
Net change in:
Escrow deposits 351,072 (339,183)
Accounts receivable 125,000
Prepaid expenses 52,289 (52,289)
Accounts payable (43,455) (62,695)
Security deposits (93,143) (3,037)
-------------- --------------
Net cash provided by operating
activities 807,661 317,144
-------------- --------------
Investing activities:
Proceeds from dispositions of
real estate 8,491,168
Cost incurred with disposition
of real estate (701,215)
--------------
Net cash provided by
investing activities 7,789,953
--------------
<PAGE>
LAKE SUN PARTNERS LIMITED PARTNERSHIP
(An Illinois Limited Partnership)
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1996 and 1995
(Continued)
Financing activities:
Distributions to partners $ (8,744,735) $ (292,285)
Contributions from partners 279,121
Release of restricted investment 700,000
Principal payments on
mortgage note payable (148,234) (42,934)
Funding of repair escrows (201,075)
Release of repair escrows 201,075
Payment of refinancing fees (774,744)
-------------- --------------
Net cash used in financing
activities (8,691,894) (331,917)
-------------- --------------
Net change in cash and
cash equivlents (94,280) (14,773)
Cash and cash equivalents
at beginning of year 94,280 109,053
-------------- --------------
Cash and cash equivalents
at end of year None $ 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") was engaged in the
operation of residential real estate, Sun Lake Apartments, located in Lake
Mary, Florida. The property was sold in November 1996 as described in Note 7 of
Notes to Financial Statements. The Partnership distributed the proceeds from
the sale of the property as well as the remaining assets, and the Partnership
was terminated on December 31, 1996.
2. Accounting Policies:
(a) The preparation of the financial statements in conformity with generally
accepted accounting principles required Lake Sun Partners, Inc. (the "General
Partner") to make estimates and assumptions that affected 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 have varied 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 recorded its investment in real estate at the lower of cost or fair
value, and periodically assessed, but not less than on an annual basis,
possible impairment to the value of its property. The General Partner estimated
the fair value of its property based on the current sales price less estimated
closing costs. Changes in the property's fair value were recorded by an
adjustment to the property allowance account and were recognized in the income
statement as an increase or decrease through recovery income or a provision for
loss in the period the change in fair value was determined. The General
Partner considered the method referred to above to result in a reasonable
measurement of the property's fair value, unless other factors affecting the
property's value indicated otherwise.
(c) Deferred expenses consisted of financing fees which were amortized over the
term of the agreement. Upon sale, the remaining balance was recognized as debt
extinguishment expense and classified as an extraordinary item.
(d) The Financial Accounting Standard Board's Statement No. 107, Disclosures
About Fair Value of Financial Instruments, required disclosure of fair value
information about financial instruments for which it was practicable to
estimate that value. Since quoted market prices were 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 could not have been
<PAGE>
substantiated by comparison to independent markets and, in many cases, may not
have been realized in immediate settlement of the instrument. Statement No. 107
did 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 was recognized on an accrual basis in accordance with generally
accepted accounting principles.
(f) The Partnership was not liable for Federal income taxes and each partner
recognized his proportionate share of the Partnership income or loss in his tax
return; therefore, no provision for income taxes was made in the financial
statements of the Partnership.
(g) A reclassification has been made to the previously reported 1995 statments
in order to provide comparability with the 1996 statements. This
reclassification has not changed the 1995 results.
3. Partnership Agreement:
The Partnership was organized in September 1991. The General Partner was Lake
Sun Partners, Inc. and the limited partners were Balcor Pension Investors - VI
and Balcor Preferred Pension - 12 A Real Estate Limited Partnership. The
Partnership's results of operations were 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 collateralized by a letter of credit
for a fee of 1.7% of the letter of credit balance annually. The new bonds
required payment of guarantee and servicing fees totaling .975% of the letter
of credit balance annually. The monthly principal and interest payment due on
the new bonds was $99,080. The mortgage note payable had a balance of
$15,657,066 at December 31, 1995.
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. In November 1996 this property was sold. See Note 7 of Notes to
Financial Statements for additional information.
During the years ended December 31, 1996 and 1995, the Partnership incurred
interest expense on the mortgage note payable of $941,895 and $959,064,
respectively, and paid interest expense of $941,895 and $1,020,529,
respectively.
<PAGE>
5. Allowance for Losses on Real Estate Held for Sale:
Activity recorded in the allowance for losses on real estate held for sale
during the years ended December 31, 1996 and 1995 is described in the table
below:
1996 1995
------ ------
Real Estate Held for Sale:
Balance at beginning of year $ 2,800,000 $ 1,800,000
Provision charged to income None 1,000,000
Recovery of provision
previously charged to
income (1,413,785) None
Direct write-off of real
estate held for sale
against allowance (1,386,215) None
------------ ------------
Balance at end of year None $ 2,800,000
============ ============
6. Management Agreement:
During 1995 and prior to its sale in 1996, the property was under a management
agreement with a third-party management company. The management agreement
provided for an annual fee of 5% of gross operating receipts of the property.
7. Property Sale:
In November 1996, the Partnership sold the Sun Lake Apartments in an all cash
sale for $24,000,000. The purchaser took title to the property subject to the
existing first mortgage loan of $15,508,832. From the proceeds of the sale,
the Partnership paid $701,215 in selling costs. The basis of the property was
$24,685,000. For financial statement purposes, the Partnership recognized no
gain or loss from the sale of this property. The Partnership recognized a
recovery of losses on real estate of $1,413,785 and wrote off $1,386,215
against the previously established allowance in connection with the sale of
this property.
8. Extraordinary Item:
In connection with the sale of the property, the Partnership wrote-off the
remaining unamortized deferred expenses in the amount of $746,767. This amount
was recognized as debt extinguishment expense and classified as an
extraordinary item.
<PAGE>
9. Fair Values of Financial Instruments:
The carrying amounts and fair values of the Partnership's financial instruments
at December 31, 1995 were as follows:
The carrying value of cash and cash equivalents and accounts payable
approximated fair value.
The fair value for the Partnership's mortgage note payable was $13,675,375 and
the carrying value was $15,657,066. The fair value of the mortgage note payable
was estimated using a 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>
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<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 410
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 410
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 410
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 410
<TOTAL-LIABILITY-AND-EQUITY> 410
<SALES> 0
<TOTAL-REVENUES> 1845
<CGS> 0
<TOTAL-COSTS> 48
<OTHER-EXPENSES> 402
<LOSS-PROVISION> 623
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 771
<INCOME-TAX> 0
<INCOME-CONTINUING> 771
<DISCONTINUED> 0
<EXTRAORDINARY> (285)
<CHANGES> 0
<NET-INCOME> 487
<EPS-PRIMARY> 1.80
<EPS-DILUTED> 1.80
</TABLE>
