March 14, 2000
United States
Securities and Exchange Commission
Washington, D.C. 20549
RE: Shelter Properties III
Form 10-KSB
File No. 0-10260
To Whom it May Concern:
The accompanying Form 10-KSB for the year ended December 31, 1999 describes a
change in the method of accounting to capitalize exterior painting and major
landscaping, which would have been expensed under the old policy. The
Partnership believes that this accounting principle change is preferable because
it provides a better matching of expenses with the related benefit of the
expenditures and it is consistent with industry practice and the policies of the
Corporate General Partner.
Please do not hesitate to contact the undersigned with any questions or comments
that you might have.
Very truly yours,
Stephen Waters
Real Estate Controller
<PAGE>
- -------------------------------------------------------------------------------
FORM 10-KSB--ANNUAL OR TRANSITIONAL REPORT UNDER
SECTION 13 OR 15(d)
Form 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [No Fee Required]
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [No Fee Required]
For the transition period from _________to _________
Commission file number 0-10260
SHELTER PROPERTIES III
(Name of small business issuer in its charter)
South Carolina 57-0718508
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
Issuer's telephone number
(864) 239-1000
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Units of Limited Partnership Interest
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act of 1934 during the past 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___
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of the Registrant's knowledge in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB.
State issuer's revenues for its most recent fiscal year. $5,550,000
State the aggregate market value of the voting partnership interests held by
non-affiliates computed by reference to the price at which the partnership
interests were sold, or the average bid and asked prices of such partnership
interests as of December 31, 1999. No market exists for the limited partnership
interests of the Registrant, and, therefore, no aggregate market value can be
determined.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
PART I
Item 1. Description of Business
Shelter Properties III (the "Partnership" or "Registrant") was organized as a
limited partnership under the laws of the State of South Carolina on May 15,
1981. The general partner responsible for management of the Partnership's
business is Shelter Realty III Corporation, a South Carolina corporation (the
"Corporate General Partner"). The only other general partner of the Partnership
was N. Barton Tuck, Jr. Mr. Tuck was not an affiliate of the Corporate General
Partner and was effectively prohibited by the Partnership's partnership
agreement (the "Partnership Agreement") from participating in the management of
the Partnership. In June 1999, Mr. Tuck's general partnership interest in the
Registrant was purchased by AIMCO Properties, L.P., an affiliate of the
Corporate General Partner. The Corporate General Partner is a subsidiary of
Apartment Investment and Management Company ("AIMCO"). The Partnership Agreement
provides that the Partnership is to terminate on December 31, 2021 unless
terminated prior to such date.
The Registrant is engaged in the business of operating and holding real estate
properties for investment. In 1981 and 1982, during its acquisition phase, the
Registrant acquired five existing apartment properties. The Registrant continues
to own and operate four of these properties. See "Item 2. Description of
Properties".
Commencing September 2, 1981, the Registrant offered pursuant to a Registration
Statement filed with the Securities and Exchange Commission up to 54,800 Units
of Limited Partnership Interest (the "Units") at a purchase price of $500 per
Unit with a minimum purchase of 10 Units ($5,000). An additional 200 Units were
purchased by the Corporate General Partner.
The offering terminated on March 22, 1982. Upon termination of the offering, the
Registrant had accepted subscriptions for 55,000 Units, including 200 Units
purchased by the Corporate General Partner, for an aggregate of $27,500,000. The
Registrant invested approximately $21,000,000 of such proceeds in five existing
apartment properties. Since its initial offering, the Registrant has not
received, nor are limited partners required to make, additional capital
contributions.
The Registrant has no employees. Management and administrative services are
performed by the Corporate General Partner and by agents retained by the
Corporate General Partner. An affiliate of the Corporate General Partner has
been providing such property management services.
The real estate business in which the Partnership is engaged is highly
competitive. There are other residential properties within the market area of
the Registrant's properties. The number and quality of competitive properties,
including those which may be managed by an affiliate of the Corporate General
Partner, in such market area, could have a material effect on the rental market
for the apartments at the Partnership's properties and the rents that may be
charged for such apartments. While the Corporate General Partner and its
affiliates own and/or control a significant number of apartment units in the
United States, such units represent an insignificant percentage of total
apartment units in the United States and, competition for the apartments is
local.
Both the income and expenses of operating the properties owned by the
Partnership are subject to factors outside of the Partnership's control, such as
changes in the supply and demand for similar properties resulting from various
market conditions, increases/decreases in unemployment or population shifts,
changes in availability of permanent mortgage financing, changes in zoning laws,
or changes in patterns or needs of users. In addition, there are risks inherent
in owning and operating residential properties because such properties are
susceptible to the impact of economic and other conditions outside of the
control of the Partnership.
There have been, and it is possible there may be other, Federal, state and local
legislation and regulations enacted relating to the protection of the
environment. The Partnership is unable to predict the extent, if any, to which
such new legislation or regulations might occur and the degree to which such
existing or new legislation or regulations might adversely affect the properties
owned by the Partnership.
The Partnership monitors its properties for evidence of pollutants, toxins and
other dangerous substances, including the presence of asbestos. In certain cases
environmental testing has been performed, which resulted in no material adverse
conditions or liabilities. In no case has the Partnership received notice that
it is a potentially responsible party with respect to an environmental clean up
site.
A further description of the Partnership's business is included in "Management's
Discussion and Analysis or Plan of Operation" included in "Item 6" of this Form
10-KSB.
Transfer of Control
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group and Insignia Properties Trust merged
into AIMCO, a publicly traded real estate investment trust, with AIMCO being the
surviving corporation (the "Insignia Merger"). As a result, AIMCO acquired 100%
ownership interest in the Corporate General Partner. The Corporate General
Partner does not believe that this transaction has had or will have a material
effect on the affairs and operations of the Partnership.
<PAGE>
Item 2. Description of Properties
The following table sets forth the Registrant's investments in properties:
<TABLE>
<CAPTION>
Date of
Property Purchase Type of Ownership Use
<S> <C> <C> <C>
Essex Park Apartments 10/29/81 Fee ownership subject to Apartment
Columbia, South Carolina first and second mortgages 323 units
Colony House Apartments 10/31/81 Fee ownership subject to Apartment
Murfreesboro, Tennessee first and second mortgages 194 units
North River Village Apartments 04/21/82 Fee ownership subject to Apartment
Atlanta, Georgia first and second 133 units
mortgages (1)
Willowick Apartments 06/30/82 Fee ownership subject to Apartment
Greenville, South Carolina first and second mortgages 180 units
</TABLE>
(1) Property is held by a Limited Partnership in which the Registrant owns a
99.99% interest.
Schedule of Properties
Set forth below for each of the Registrant's properties is the gross carrying
value, accumulated depreciation, depreciable life, method of depreciation, and
Federal tax basis.
<TABLE>
<CAPTION>
Gross
Carrying Accumulated Federal
Property Value Depreciation Rate Method Tax Basis
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C>
Essex Park Apartments $10,298 $ 6,122 5-36 S/L $ 1,613
Colony House Apartments 6,164 3,565 5-36 S/L 906
North River Village Apartments 5,844 3,575 5-32 S/L 923
Willowick Apartments 5,031 2,830 5-32 S/L 884
Totals $27,337 $16,092 $ 4,326
</TABLE>
See "Note A" to the consolidated financial statements included in "Item 7.
Financial Statements" for a description of the Partnership's depreciation policy
and "Note I - Change in Accounting Principle".
<PAGE>
Schedule of Property Indebtedness
The following table sets forth certain information relating to the loans
encumbering the Registrant's properties.
<TABLE>
<CAPTION>
Principal Principal
Balance At Stated Balance
December 31, Interest Period Maturity Due At
Property 1999 Rate Amortized Date Maturity (3)
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C>
Essex Park
1st mortgage $ 2,908 7.60% (1) 11/15/02 $ 2,552
2nd mortgage 109 7.60% none 11/15/02 109
Colony House
1st mortgage 2,168 7.60% (1) 11/15/02 1,903
2nd mortgage 81 7.60% none 11/15/02 81
North River Village
1st mortgage 1,603 7.83% (2) 10/15/03 1,489
2nd mortgage 54 7.83% none 10/15/03 54
Willowick
1st mortgage 1,135 7.60% (1) 11/15/02 997
2nd mortgage 43 7.60% none 11/15/02 43
8,101 $ 7,228
Less unamortized
present value discounts (206)
Totals $ 7,895
</TABLE>
(1) The principal balance is being amortized over 257 months with a
balloon payment due November 15, 2002.
(2) The principal balance is being amortized over 344 months with a
balloon payment due October 15, 2003.
(3) See "Item 7. Financial Statements - Note C" for information with respect
to the Registrant's ability to repay these loans and other specific
details about the loans.
<PAGE>
Rental Rates and Occupancy
Average annual rental rates and occupancy for 1999 and 1998 for each property
are as follows:
Average Annual Average Annual
Rental Rates Occupancy
(per unit)
Property 1999 1998 1999 1998
Essex Park $6,471 $6,309 92% 94%
Colony House 7,708 7,531 93% 91%
North River Village 9,316 8,972 94% 94%
Willowick 5,858 5,781 93% 92%
As noted under "Item 1. Description of Business", the real estate industry is
highly competitive. All of the properties are subject to competition from other
residential apartment complexes in the area. The Corporate General Partner
believes that the properties are adequately insured. The properties are
apartment complexes which lease units for lease terms of one year or less. As of
December 31, 1999, no tenant leases 10% or more of the available rental space.
All of the properties are in good physical condition, subject to normal
depreciation and deterioration as is typical for assets of this type and age.
Real Estate Taxes and Rates:
Real estate taxes and rates in 1999 for each property were as follows:
1999 1999
Billing Rate
(in thousands)
Essex Park $118 27.53%
Colony House 109 4.93%
North River Village 75 3.95%
Willowick 70 32.23%
Capital Improvements
Essex Park Apartments: The Partnership completed approximately $243,000 in
capital expenditures at Essex Park Apartments as of December 31, 1999,
consisting primarily of floor covering, and appliance replacement, swimming pool
enhancements, major landscaping, and HVAC improvements. These improvements were
funded primarily from replacement reserves and operations. The Partnership is
currently evaluating the capital improvement needs of the property for the
upcoming year. The minimum amount to be budgeted is expected to be $300 per unit
or $96,900. Additional improvements may be considered and will depend on the
physical condition of the property as well as replacement reserves and
anticipated cash flow generated by the property.
Colony House Apartments: The Partnership completed approximately $335,000 in
capital expenditures at Colony House Apartments as of December 31, 1999,
consisting primarily of floor covering and appliance replacements, electrical
improvements, roof and parking lot improvements. These improvements were funded
primarily from replacement reserves and operations. The Partnership is currently
evaluating the capital improvement needs of the property for the upcoming year.
The minimum amount to be budgeted is expected to be $300 per unit or
approximately $58,200. Additional improvements may be considered and will depend
on the physical condition of the property as well as replacement reserves and
anticipated cash flow generated by the property.
North River Village Apartments: The Partnership completed approximately $114,000
in capital expenditures at North River Village Apartments as of December 31,
1999, consisting primarily of floor covering and appliance replacements,
electrical and HVAC improvements. These improvements were funded primarily from
replacement reserves and operations. The Partnership is currently evaluating the
capital improvement needs of the property for the upcoming year. The minimum
amount to be budgeted is expected to be $300 per unit or approximately $39,900.
Additional improvements may be considered and will depend on the physical
condition of the property as well as replacement reserves and anticipated cash
flow generated by the property.
Willowick Apartments: The Partnership completed approximately $413,000 in
capital expenditures at Willowick Apartments as of December 31, 1999, consisting
primarily of floor covering and appliance replacements, pool upgrades,
electrical improvements, exterior painting, and structural improvements. These
improvements were funded primarily from replacement reserves and operations. The
Partnership is currently evaluating the capital improvement needs of the
property for the upcoming year. The minimum amount to be budgeted is expected to
be $300 per unit or approximately $54,000. Additional improvements may be
considered and will depend on the physical condition of the property as well as
replacement reserves and anticipated cash flow generated by the property.
<PAGE>
Item 3. Legal Proceedings
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the Corporate General Partner and several of their affiliated
partnerships and corporate entities. The action purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia Affiliates") of interests in certain general partner entities, past
tender offers by Insignia Affiliates to acquire limited partnership units, the
management of partnerships by Insignia Affiliates and the Insignia Merger (see
Item 7. Financial Statements, "Note B - Transfer of Control"). The plaintiffs
seek monetary damages and equitable relief, including judicial dissolution of
the Partnership. On June 25, 1998, the Corporate General Partner filed a motion
seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs have filed an amended complaint. The Corporate General Partner filed
demurrers to the amended complaint which were heard February 1999. Pending the
ruling on such demurrers, settlement negotiations commenced. On November 2,
1999, the parties executed and filed a Stipulation of Settlement settling
claims, subject to final court approval, on behalf of the Partnership and all
limited partners who own units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Superior Court of the
State of California, County of San Mateo, at which time the Court set a final
approval hearing for December 10, 1999. Prior to the December 10, 1999 hearing
the Court received various objections to the settlement, including a challenge
to the Court's preliminary approval based upon the alleged lack of authority of
class plaintiffs' counsel to enter the settlement. On December 14, 1999, the
Corporate General Partner and its affiliates terminated the proposed settlement.
Certain plaintiffs have filed a motion to disqualify some of the plaintiffs'
counsel in the action. The Corporate General Partner does not anticipate that
costs associated with this case will be material to the Partnership's overall
operations.
The Partnership is unaware of any pending or outstanding litigation that is not
of a routine nature arising in the ordinary course of business.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
During the quarter ended December 31, 1999, no matter was submitted to a vote of
unit holders through the solicitation of proxies or otherwise.
<PAGE>
PART II
Item 5. Market for the Partnership Equity and Related Partner Matters
The Partnership, a publicly-held limited partnership, offered and sold 54,800
limited partnership units aggregating $27,400,000. An additional 200 units were
purchased by the Corporate General Partner. The Partnership currently has 1,425
holders of record owning an aggregate of 55,000 Units. Affiliates of the
Corporate General Partner own 29,657 units or approximately 53.92% at December
31, 1999. No public trading market has developed for the Units, and it is not
anticipated that such a market will develop in the future.
The following table sets forth the distributions made by the Partnership for the
years ended December 31, 1998 and 1999.
Distributions
Aggregate Per Unit
01/01/98 - 12/31/98 $ 2,200,000 (1) $39.60
01/01/99 - 12/31/99 $ 775,000 (1) $13.95
(1) Distributions were made from cash from operations (see "Item 6" for
further details).
Future cash distributions will depend on the levels of cash generated from
operations, the availability of cash reserves and the timing of debt maturities,
refinancings, and/or property sales. The Partnership's distribution policy is
reviewed on a semi-annual basis. There can be no assurance, however, that the
Partnership will generate sufficient funds from operations, after required
capital expenditures, to permit any additional distributions to its partners in
2000 or subsequent periods. See "Item 2. Description of Properties - Capital
Improvements" for information relating to anticipated capital expenditures at
the properties. In addition, the Partnership may be restricted from making
distributions if the amount in the reserve account for each property maintained
by the mortgage lender is less than $400 per apartment unit at Colony House,
Essex Park, and Willowick Apartments and $200 per apartment unit at North River
Village Apartments. As of December 31, 1999, the reserve account was fully
funded with approximately $494,000 in its reserve accounts.
Several tender offers were made by various parties, including affiliates of the
general partners, during the fiscal years ended December 31, 1999 and 1998. As a
result of these tender offers, AIMCO and its affiliates currently own 29,657
limited partnership units in the Partnership representing 53.92% of the
outstanding units. It is possible that AIMCO or its affiliates will make one or
more additional offers to acquire additional limited partnership interests in
the Partnership for cash or in exchange for units in the operating partnership
of AIMCO. Consequently, AIMCO is in a position to influence all voting decisions
with respect to the Registrant. Under the Partnership Agreement, unitholders
holding a majority of the Units are entitled to take action with respect to a
variety of matters. When voting on matters, AIMCO would in all likelihood vote
the Units it acquired in a manner favorable to the interest of the Corporate
General Partner because of their affiliation with the Corporate General Partner.
Item 6. Management's Discussion and Analysis or Plan of Operation
The matters discussed in this Form 10-KSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the disclosure
contained in this Form 10-KSB and the other filings with the Securities and
Exchange Commission made by the Registrant from time to time. The discussion of
the Registrant's business and results of operations, including forward-looking
statements pertaining to such matters, does not take into account the effects of
any changes to the Registrant's business and results of operation. Accordingly,
actual results could differ materially from those projected in the
forward-looking statements as a result of a number of factors, including those
identified herein.
This item should be read in conjunction with the consolidated financial
statements and other items contained elsewhere in this report.
Results of Operations
The Registrant's net income for the year ended December 31, 1999, was
approximately $778,000 versus approximately $794,000 for the year ended December
31, 1998. (See "Note D" of the consolidated financial statements for a
reconciliation of these amounts to the Registrant's federal taxable income.) The
decrease in net income was due to an increase in total expenses which was
partially offset by an increase in total revenues. Total expenses increased due
to an increase in depreciation, property taxes and general and administrative
expenses. Depreciation expense increased as a result of property additions at
the Partnership's four investment properties during 1999. Property tax expense
increased as a result of an increase in the assessed value of North River
Village Apartments.
General and administrative expenses increased as a result of an increase in
legal costs, which include the Partnership's portion of settlement costs paid in
March 1999 as disclosed in the Partnership's annual report on Form 10-KSB for
the year ended December 31, 1998. Included in general and administrative
expenses at both December 31, 1999 and 1998 are management reimbursements to the
Corporate General Partner allowed under the Partnership Agreement. In addition
costs associated with the quarterly and annual communications with investors and
regulatory agencies and the annual audit and appraisals required by the
Partnership Agreement are also included. Operating and interest expense remained
relatively constant for the comparable periods.
Total revenues increased due to an increase in rental income which was partially
offset by a decrease in other income. Rental revenues increased as a result of
an increase in the average annual rental rates at all four of the Partnership's
properties. The decrease in other income is due to a decrease in interest income
due to lower cash balances in interest bearing accounts as a result of
distributions to partners and the use of escrow funds for capital improvements.
Effective January 1, 1999, the Partnership changed its method of accounting to
capitalize the cost of exterior painting and major landscaping on a prospective
basis. The Partnership believes that this accounting principle change is
preferable because it provides a better matching of expenses with the related
benefit of the expenditures and it is consistent with industry practice and the
policies of the Corporate General Partner. The effect of the change in 1999 was
to increase net income by approximately $223,000 ($4.02 per limited partnership
unit). The cumulative effect, had this change been applied to prior periods, is
not material. The accounting principle change will not have an effect on cash
flow, funds available for distribution or fees payable to the Corporate General
Partner and affiliates.
Liquidity and Capital Resources
At December 31, 1999, the Registrant had cash and cash equivalents of
approximately $655,000 as compared to approximately $630,000 at December 31,
1998. The increase in cash and cash equivalents of approximately $25,000 is
primarily due to approximately $1,785,000 of cash provided by operating
activities which was substantially offset by approximately $729,000 of cash used
in investing activities and approximately $1,031,000 of cash used in financing
activities. Cash used in investing activities consisted of property improvements
and replacements which was partially offset by net withdrawals from escrow
accounts maintained by the mortgage lender. Cash used in financing activities
consisted primarily of partner distributions and to a lesser extent payments of
principal made on the mortgages encumbering the Registrant's properties.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the investment properties to adequately maintain the
physical assets and other operating needs of the Registrant and to comply with
Federal, state, local, legal and regulatory requirements. The Partnership is
currently evaluating the capital improvement needs of the properties for the
upcoming year. The minimum amount to be budgeted is expected to be $300 per unit
or $249,000. Additional improvements may be considered and will depend on the
physical condition of the properties as well as replacement reserves and
anticipated cash flow generated by the properties.
The additional capital expenditures will be incurred only if cash is available
from operations and Partnership reserves. To the extent that such budgeted
capital improvements are completed the Registrant's distributable cash flow, if
any, may be adversely affected at least in the short term.
The Registrant's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Registrant. The mortgage
indebtedness of approximately $7,895,000, net of discount, is amortized over
varying periods with balloon payments ranging from November 15, 2002 to October
15, 2003. The Corporate General Partner may attempt to refinance such
indebtedness and/or sell the properties prior to such maturity date. If the
properties cannot be refinanced or sold for a sufficient amount, the Registrant
will risk losing such properties through foreclosure.
During the year ended December 31, 1999, cash distributions of approximately
$775,000 ($767,000 of which was paid to the limited partners, $13.95 per limited
partnership unit) were paid from operations. During the year ended December 31,
1998, cash distributions of approximately $2,200,000 ($2,178,000 of which was
paid to the limited partners, $39.60 per limited partnership unit) were paid
from operations. Future cash distributions will depend on the levels of net cash
generated from operations, the availability of cash reserves, and the timing of
debt maturities, refinancings and/or property sales. The Partnership's
distribution policy is reviewed on a semi-annual basis. There can be no
assurance, however, that the Partnership will generate sufficient funds from
operations, after planned capital improvement expenditures, to permit any
additional distributions to its partners in 2000 or subsequent periods. In
addition, the Partnership may be restricted from making distributions if the
amount in the reserve account for each property maintained by the mortgage
lender is less than $400 per apartment unit at Colony House Apartments, Essex
Park Apartments, and Willowick Apartments and $200 per apartment unit at North
River Village Apartments. As of December 31, 1999, the reserve account was fully
funded with approximately $494,000 in its reserve accounts.
Tender Offer
Several tender offers were made by various parties, including affiliates of the
general partners, during the fiscal years ended December 31, 1999 and 1998. As a
result of these tender offers, AIMCO and its affiliates currently own 29,657
limited partnership units in the Partnership representing approximately 53.92%
of the outstanding units. It is possible that AIMCO or its affiliates will make
one or more additional offers to acquire additional limited partnership
interests in the Partnership for cash or in exchange for units in the operating
partnership of AIMCO. Consequently, AIMCO is in a position to influence all
voting decisions with respect to the Registrant. Under the Partnership
Agreement, unitholders holding a majority of the Units are entitled to take
action with respect to a variety of matters. When voting on matters, AIMCO would
in all likelihood vote the Units it acquired in a manner favorable to the
interest of the Corporate General Partner because of their affiliation with the
Corporate General Partner.
Year 2000 Compliance
General Description
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. The Partnership is
dependent upon the Corporate General Partner and its affiliates for management
and administrative services ("Managing Agent"). Any of the Managing Agent's
computer programs or hardware that had date-sensitive software or embedded chips
might have recognized a date using "00" as the year 1900 rather than the year
2000. This could have resulted in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
Computer Hardware, Software and Operating Equipment
In 1999, the Managing Agent completed all phases of its Year 2000 program by
completing the replacement and repair of any hardware or software system or
operating equipment that was not yet Year 2000 compliant. The Managing Agent's
hardware and software systems and its operating equipment are now Year 2000
compliant. No material failure or erroneous results have occurred in the
Managing Agent's computer applications related to the failure to reference the
Year 2000 to date.
Third Parties
To date, the Managing Agent is not aware of any significant supplier or
subcontractor (external agent) or financial institution of the Partnership that
has a Year 2000 issue that would have a material impact on the Partnership's
results of operations, liquidity or capital resources. However, the Managing
Agent has no means of ensuring or determining the Year 2000 compliance of
external agents. At this time, the Managing Agent does not believe that a Year
2000 issue of any non-compliant external agent will have a material impact on
the Partnership's financial position or results of operations.
Costs
The total cost of the Managing Agent's Year 2000 project was approximately $3.2
million and was funded from operating cash flows.
Risks Associated with the Year 2000
The Managing Agent completed all necessary phases of its Year 2000 program in
1999, and did not experience system or equipment malfunctions related to a
failure to reference the Year 2000. The Managing Agent or Partnership have not
been materially adversely effected by disruptions in the economy generally
resulting from the Year 2000 issue.
At this time, the Managing Agent does not believe that the Partnership's
businesses, results of operations or financial condition will be materially
adversely effected by the Year 2000 issue.
Contingency Plans Associated with the Year 2000
The Managing Agent has not had to implement contingency plans such as manual
workarounds or selecting new relationships for its banking or elevator operation
activities in order to avoid the Year 2000 issue.
<PAGE>
Item 7. Financial Statements
SHELTER PROPERTIES III
LIST OF FINANCIAL STATEMENTS
Report of Ernst & Young, LLP Independent Auditors
Consolidated Balance Sheet - December 31, 1999
Consolidated Statements of Operations - Years ended December 31, 1999
and 1998
Consolidated Statements of Changes in Partners' (Deficit) Capital - Years
ended December 31, 1999 and 1998
Consolidated Statements of Cash Flows - Years ended December 31, 1999 and
1998
Notes to Consolidated Financial Statements
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Partners
Shelter Properties III
We have audited the accompanying consolidated balance sheet of Shelter
Properties III as of December 31, 1999, and the related consolidated statements
of operations, changes in partners' (deficit) capital and cash flows for each of
the two years in the period ended December 31, 1999. 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 auditing standards generally accepted
in the United States. 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 the Partnership's 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Shelter
Properties III at December 31, 1999, and the consolidated results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
As discussed in Note I to the consolidated financial statements, the Partnership
changed its method of accounting to capitalize the cost of exterior painting and
major landscaping effective January 1, 1999.
/s/ ERNST & YOUNG LLP
Greenville, South Carolina
February 24, 2000
<PAGE>
SHELTER PROPERTIES III
CONSOLIDATED BALANCE SHEET
(in thousands, except unit data)
December 31, 1999
<TABLE>
<CAPTION>
Assets
<S> <C> <C>
Cash and cash equivalents $ 655
Receivables and deposits 437
Restricted escrows 570
Other assets 181
Investment properties (Notes C & F):
Land $ 1,281
Buildings and related personal property 26,056
27,337
Less accumulated depreciation (16,092) 11,245
$13,088
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 114
Tenant security deposit liabilities 106
Accrued property taxes 157
Other liabilities 456
Mortgage notes payable (Notes C & F) 7,895
Partners' (Deficit) Capital
General partners $ (89)
Limited partners (55,000 units issued and
outstanding) 4,449 4,360
$13,088
</TABLE>
See Accompanying Notes to Consoldiated Financial Statements
<PAGE>
SHELTER PROPERTIES III
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
Years Ended December 31,
1999 1998
Revenues:
Rental income $ 5,225 $ 5,102
Other income 325 388
Total revenues 5,550 5,490
Expenses:
Operating 2,430 2,469
General and administrative 236 205
Depreciation 949 914
Interest 750 746
Property taxes 407 362
Total expenses 4,772 4,696
Net income (Note D) $ 778 $ 794
Net income allocated to general partners (1%) $ 8 $ 8
Net income allocated to limited partners (99%) 770 786
$ 778 $ 794
Net income per limited partnership unit $ 14.00 $ 14.29
Distributions per limited partnership unit $ 13.95 $ 39.60
See Accompanying Notes to Consoldiated Financial Statements
<PAGE>
SHELTER PROPERTIES III
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
(in thousands, except unit data)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partners Partners Total
<S> <C> <C> <C> <C>
Original capital contributions 55,000 $ 2 $27,500 $27,502
Partners' (deficit) capital at
December 31, 1997 55,000 $ (75) $ 5,838 $ 5,763
Distributions to partners -- (22) (2,178) (2,200)
Net income for the year ended
December 31, 1998 -- 8 786 794
Partners' (deficit) capital at
December 31, 1998 55,000 (89) 4,446 4,357
Distributions to partners -- (8) (767) (775)
Net income for the year ended
December 31, 1999 -- 8 770 778
Partners' (deficit) capital at
December 31, 1999 55,000 $ (89) $ 4,449 $ 4,360
</TABLE>
See Accompanying Notes to Consoldiated Financial Statements
<PAGE>
SHELTER PROPERTIES III
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended
December 31,
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net income $ 778 $ 794
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 949 914
Amortization of discounts and loan costs 96 98
Change in accounts:
Receivables and deposits (27) (181)
Other assets (32) 13
Accounts payable 53 (56)
Tenant security deposit liabilities (3) (11)
Accrued property taxes (95) 252
Other liabilities 66 12
Net cash provided by operating activities 1,785 1,835
Cash flows from investing activities:
Property improvements and replacements (1,105) (352)
Net withdrawals from (deposits to) restricted escrows 376 (40)
Net cash used in investing activities (729) (392)
Cash flows from financing activities:
Payments on mortgage notes payable (256) (237)
Partners' distributions (775) (2,200)
Net cash used in financing activities (1,031) (2,437)
Net increase (decrease) in cash and cash equivalents 25 (994)
Cash and cash equivalents at beginning of year 630 1,624
Cash and cash equivalents at end of year $ 655 $ 630
Supplemental disclosure of cash flow information:
Cash paid for interest $ 630 $ 649
See Accompanying Notes to Consoldiated Financial Statements
</TABLE>
<PAGE>
SHELTER PROPERTIES III
Notes to Consolidated Financial Statements
December 31, 1999
Note A - Organization and Significant Accounting Policies
Organization
Shelter Properties III (the "Partnership" or "Registrant") was organized as a
limited partnership under the laws of the State of South Carolina on May 15,
1981. The general partner responsible for management of the Partnership's
business is Shelter Realty III Corporation, a South Carolina corporation (the
"Corporate General Partner"). The only other general partner of the Partnership
was N. Barton Tuck, Jr. Mr. Tuck was not an affiliate of the Corporate General
Partner and was effectively prohibited by the Partnership's partnership
agreement (the "Partnership Agreement") from participating in the management of
the Partnership. In June 1999, Mr. Tuck's general partnership interest in the
Registrant was purchased by AIMCO Properties, L.P., an affiliate of the
Corporate General Partner. The Corporate General Partner is a subsidiary of
Apartment Investment and Management Company ("AIMCO"). The Partnership Agreement
provides that the Partnership is to terminate on December 31, 2021 unless
terminated prior to such date. The Partnership commenced operations on October
28, 1981, and completed its acquisition of apartment properties on June 30,
1982. The Partnership operates four apartment properties located in the South.
Principles of Consolidation
The financial statements include all of the accounts of the Partnership and its
99.99% owned partnership. The Corporate General Partner of the consolidated
partnerships is Shelter Realty III Corporation. Shelter Realty III Corporation
may be removed as the general partner of the consolidated partnership by the
Registrant; therefore, the consolidated partnership is controlled and
consolidated by the Registrant. All significant interpartnership balances have
been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Allocation of Cash Distributions
Cash distributions by the Partnership are allocated between general and limited
partners in accordance with the provisions of the Partnership Agreement. The
Partnership Agreement provides that net cash from operations means revenue
received less operating expenses paid, adjusted for certain specified items
which primarily include mortgage payments on debt, property improvements and
replacements not previously reserved, and the effects of other adjustments to
reserves including reserve amounts deemed necessary by the Corporate General
Partner. In the following notes to consolidated financial statements, whenever
"net cash from operations" is used, it has the aforementioned meaning. The
following is a reconciliation of the subtotal in the accompanying consolidated
statements of cash flows captioned "net cash provided by operating activities"
to "net cash from operations", as defined in the Partnership Agreement. However,
"net cash from operations" should not be considered an alternative to net income
as an indicator of the Partnership's operating performance or to cash flows as a
measure of liquidity.
Years ended December 31,
(in thousands)
1999 1998
Net cash provided by operating activities $1,785 $1,835
Property improvements and replacements (1,105) (352)
Payments on mortgage notes payable (256) (237)
Changes in reserves for net operating liabilities 38 (29)
Changes in restricted escrows, net 376 (40)
Additional operating reserves (838) (1,100)
Net cash from operations $ -- $ 77
The Corporate General Partner reserved approximately $838,000 and $1,100,000 on
December 31, 1999 and 1998, respectively, to fund capital improvements and
repairs at its properties.
The following table sets forth the distributions made by the Partnership for the
years ended December 31, 1998 and 1999.
Distributions
Aggregate Per Unit
01/01/98 - 12/31/98 $ 2,200,000 (1) $39.60
01/01/99 - 12/31/99 $ 775,000 (2) $13.95
(1) Distributions were made from cash from operations ($2,178,000 to the
limited partners, $39.60 per limited partnership unit).
(2) Distributions were made from cash from operations ($767,000 to the limited
partners, $13.95 per limited partnership unit).
The Partnership Agreement provides that 99% of distributions of net cash from
operations are allocated to the limited partners until they receive net cash
from operations for such fiscal year equal to 7% of their adjusted capital
values (as defined in the Partnership Agreement), at which point the general
partners will be allocated all net cash from operations until they have received
distributions equal to 10% of the aggregate net cash from operations distributed
to partners for such fiscal year. Thereafter, the general partners will be
allocated 10% of any distributions of remaining net cash from operations for
such fiscal year.
All distributions of distributable net proceeds (as defined in the Partnership
Agreement) from property dispositions and refinancings will be allocated to the
limited partners until each limited partner has received an amount equal to a
cumulative 7% per annum of the average of the limited partners' adjusted capital
value, less any prior distributions of net cash from operations and
distributable net proceeds, and has also received an amount equal to the limited
partners' adjusted capital value. Thereafter, the general partners receive 1% of
the selling prices of properties sold where they acted as a broker, and then the
limited partners will be allocated 85% of any remaining distributions of
distributable net proceeds and the general partners will receive 15%.
In addition, the Partnership may be restricted from making distributions if the
amount in the reserve account for each property maintained by the mortgage
lender is less than $400 per apartment unit at Colony House Apartments, Essex
Park Apartments, and Willowick Apartments and $200 per apartment unit at North
River Village Apartments. As of December 31, 1999, the reserve account was fully
funded with approximately $494,000 in its reserve account.
Undistributed Net Proceeds from Property Sales
At December 31, 1999, undistributed proceeds from property sales amounted to
approximately $185,000 which is payable to the general partners for related
sales commissions when certain levels of return are received by the limited
partners. (See "Note E").
Allocation of Profits, Gains and Losses
Profits, gains, and losses of the Partnership are allocated between general and
limited partners in accordance with the provisions of the Partnership Agreement.
Profits, not including gain from property dispositions, are allocated as if they
were distributions of net cash from operations.
Any gain from property dispositions attributable to the excess, if any, of the
indebtedness relating to a property immediately prior to the disposition of such
property over the Partnership's adjusted basis in the property shall be
allocated to each partner having a negative capital account balance, to the
extent of such negative balance. The balance of any gain shall be treated on a
cumulative basis as if it constituted an equivalent amount of distributable net
proceeds and shall be allocated to the general partners to the extent that
general partners would have received distributable net proceeds in connection
therewith and the balance shall be allocated to the limited partners. However,
the interest of the general partners will be equal to at least 1% of each gain
at all times during the existence of the Partnership.
All losses, including losses attributable to property dispositions, are
allocated 99% to the limited partners and 1% to the general partners.
Accordingly, net income as shown in the consolidated statements of operations
and consolidated changes in partners' (deficit) capital for 1999 and 1998 were
allocated 99% to the limited partners and 1% to the general partners. Net income
per limited partnership unit for each such year was computed as 99% of net
income divided by 55,000 average units outstanding.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures about
Fair Value of Financial Instruments", as amended by SFAS No. 119, "Disclosures
about Derivative Financial Instruments and Fair Value of Financial Instruments",
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate fair value. Fair value is defined in the SFAS as the amount at which
the instruments could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale. The Partnership believes
that the carrying amount of its financial instruments (except for long term
debt) approximates their fair value due to the short term maturity of these
instruments. The fair value of the Partnership's long term debt, after
discounting the scheduled loan payments to maturity, approximates its carrying
balance.
Other Reserves
The general partners may designate a portion of cash generated from operations
as "other reserves" in determining net cash from operations. The Corporate
General Partners designated as other reserves an amount equal to the net
liabilities related to the operations of apartment properties during the current
fiscal year that are expected to require the use of cash during the next fiscal
year. The change in other reserves during 1999 and 1998 were an increase of
approximately $38,000 and a decrease of approximately $29,000, respectively,
which amounts were determined by considering changes in the balances of
receivables and deposits, other assets, accounts payable, tenant security
deposits liabilities, accrued taxes, and other liabilities. At this time, the
general partner expects to continue to adjust other reserves based on the net
change in the aforementioned account balances.
Cash and Cash Equivalents
Includes cash on hand, and in banks and money market accounts. At certain times,
the amount of cash deposited at a bank may exceed the limit on insured deposits.
Restricted Escrows
Capital Improvement Account - At the time of the refinancing of North
River Village Apartments in 1993, approximately $546,000 of the
refinancing proceeds were designated for a "capital improvement escrow"
for certain capital improvements. During 1999 the remaining balance in
this account was returned to the property as all required capital
improvements had been completed.
Reserve Account - In addition to the capital improvement account, a
general reserve account was established with the refinancing proceeds for
each mortgaged property. These funds were established to cover necessary
repairs and replacements of existing improvements, debt service, out of
pocket expenses incurred for ordinary and necessary administrative tasks,
and payment of real property taxes and insurance premiums. The Partnership
is required to deposit net operating income (as defined in the mortgage
note) into the reserve accounts until the reserve accounts are funded in
an amount equal to $400 per apartment unit at Colony House Apartments,
Essex Park Apartments, and Willowick Apartments and $200 per apartment
unit at North River Village Apartments. As of December 31, 1999, the
reserve accounts were fully funded for all the partnership's investment
properties with approximately $494,000 in its reserve accounts including
interest earned on these funds.
Depreciation
Depreciation is provided by the straight-line method over the estimated lives of
the apartment properties and related personal property. For Federal income tax
purposes, the accelerated cost recovery method is used (1) for real property
over 15 years for additions prior to March 16, 1984, 18 years for additions
after March 15, 1984 and before May 9, 1985, and 19 years for additions after
May 8, 1985, and before January 1, 1987, and (2) for personal property over 5
years for additions prior to January 1, 1987. As a result of the Tax Reform Act
of 1986, for additions after December 31, 1986, the modified accelerated cost
recovery method is used for depreciation of (1) real property additions over 27
1/2 years and (2) personal property additions over 5 years.
Effective January 1, 1999 the Partnership changed its method of accounting to
capitalize the costs of exterior painting and major landscaping (see Note I).
Loan Costs
Loan costs of approximately $408,000, less accumulated amortization of
approximately $277,000, are included in other assets and are being amortized on
a straight-line basis over the life of the loans.
Tenant Security Deposits
The Partnership requires security deposits from lessees for the duration of the
lease and such deposits are included in receivables and deposits. The security
deposits are refunded when the tenant vacates, provided the tenant has not
damaged its space and is current on its rental payments.
Leases
The Partnership generally leases apartment units for twelve-month terms or less.
The Partnership recognizes income as earned on its leases. In addition, the
Corporate General Partner's policy is to offer rental concessions during
particularly slow months or in response to heavy competition from other similar
complexes in the area. Concessions are charged to rental income as incurred.
Investment Properties
Investment properties consist of four apartment complexes and are stated at
cost. Acquisition fees are capitalized as a cost of real estate. In accordance
with Financial Accounting Standards Board Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
the Partnership records impairment losses on long-lived assets used in
operations when events and circumstances indicate that the assets might be
impaired and the undiscounted cash flows estimated to be generated by those
assets are less than the carrying amounts of those assets. Costs of apartment
properties that have been permanently impaired have been written down to
appraised value. The Corporate General Partner relies on the annual appraisals
performed by outside appraisers for the estimated value of the Partnership's
properties. There are three recognized approaches or techniques available to the
appraiser. When applicable, these approaches are used to process the data
considered significant to each to arrive at separate value indications. In all
instances the experience of the appraiser, coupled with his objective judgment,
plays a major role in arriving at the conclusions of the indicated value for
which the final estimate of value is made. The three approaches commonly known
are the cost approach, the sales comparison approach, and the income approach.
The cost approach is often not considered to be reliable due to the lack of land
sales and the significant amount of depreciation and, therefore, is often not
presented. Upon receipt of the appraisals, any property which is stated on the
books of the Partnership above the estimated value given in the appraisal, is
written down to the estimated value given by the appraiser. The appraiser
assumes a stabilized occupancy at the time of the appraisal and, therefore, any
impairment of value is considered to be permanent by the Corporate General
Partner. No adjustments for impairment of value were recorded in the years ended
December 31, 1999 and 1998.
Advertising
The Partnership expenses the costs of advertising as incurred. Advertising costs
of approximately $97,000 and $77,000 for the years ended December 31, 1999 and
1998, respectively, were charged to operating expense as incurred.
Segment Reporting
Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosure about
Segments of an Enterprise and Related Information" ("Statement 131"),
established standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. (See "Note
G" for required disclosure.)
Note B - Transfer of Control
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group and Insignia Properties Trust merged
into AIMCO, a publicly traded real estate investment trust, with AIMCO being the
surviving corporation (the "Insignia Merger"). As a result, AIMCO acquired 100%
ownership interest in the Corporate General Partner. The Corporate General
Partner does not believe that this transaction has had or will have a material
effect on the affairs and operations of the Partnership.
Note C - Mortgage Notes Payable
The principle terms of mortgage notes payable are as follows:
<TABLE>
<CAPTION>
Principal Monthly Principal
Balance At Payment Stated Balance
December 31, Including Interest Maturity Due At
1999 Interest Rate Date Maturity
(in thousands) (in thousands)
Properties
<S> <C> <C> <C> <C> <C>
Essex Park Apartments
1st mortgage $ 2,908 $ 28 7.60% 11/15/02 $ 2,552
2nd mortgage 109 (a) 7.60% 11/15/02 109
Colony House
1st mortgage 2,168 21 7.60% 11/15/02 1,903
2nd mortgage 81 (a) 7.60% 11/15/02 81
North River Village
Apartments
1st mortgage 1,603 13 7.83% 10/15/03 1,489
2nd mortgage 54 (a) 7.83% 10/15/03 54
Willowick Apartments
1st mortgage 1,135 11 7.60% 11/15/02 997
2nd mortgage 43 (a) 7.60% 11/15/02 43
$ 8,101 $ 73 $ 7,228
Less unamortized present
value of discounts (206)
Total $ 7,895
</TABLE>
(a) Monthly payment of interest only is less than one thousand dollars.
The Partnership exercised interest rate buy-down options when the debt was
refinanced, reducing the stated rates from 8.76% to 7.60% and 8.13% to 7.83% in
1992 and 1993, respectively. The fee for the interest rate reduction amounted to
approximately $575,000 and is being amortized as a loan discount on the
effective interest method over the life of the loans The discount fee is
reflected as a reduction of the mortgage notes payable and increases the
effective rates of the debt to 8.76% and 8.13%, respectively.
The mortgage notes payable are non-recourse and are secured by pledge of the
apartment properties and by pledge of revenues from the apartment properties.
All of the mortgage notes include prepayment penalties if repaid prior to
maturity. Further, the properties may not be sold subject to existing
indebtedness.
Scheduled principal payments of the mortgage notes payable subsequent to
December 31, 1999 are as follows (in thousands):
2000 $ 277
2001 299
2002 5,957
2003 1,568
$ 8,101
Note D - Income Taxes
The Partnership has received a ruling from the Internal Revenue Service that it
will be classified as a partnership for Federal income tax purposes.
Accordingly, no provision for income taxes is made in the consolidated financial
statements of the Partnership. Taxable income or loss of the Partnership is
reported in the income tax returns of its partners.
The following is a reconciliation of reported net income and Federal taxable
income (in thousands, except per unit data):
1999 1998
Net income as reported $ 778 $ 794
Add (deduct):
Depreciation differences 403 487
Change in prepaid rental 17 (29)
Other 18 20
Federal taxable income $1,216 $1,272
Federal taxable income per limited
partnership unit $21.89 $22.90
<PAGE>
The following is a reconciliation between the Partnership's reported amounts and
Federal tax basis of net assets and liabilities (in thousands):
Net assets as reported $ 4,360
Land and buildings 3,086
Accumulated depreciation (10,005)
Syndication fees 3,235
Other 284
Net assets - tax basis $ 960
Note E - Transactions with Affiliated Parties
The Partnership has no employees and is dependent on the Corporate General
Partner and its affiliates for the management and administration of all
partnership activities. The Partnership Agreement provides for (i) payments to
affiliates for services and (ii) reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership. The following amounts were paid or
accrued to the Corporate General Partner and affiliates during the years ended
December 31, 1999 and 1998:
1999 1998
(in thousands)
Property management fees (included in operating
expenses) $ 284 $ 283
Reimbursement for services of affiliates,
(included in operating, general and
administrative expenses, and investment
properties) 131 119
Due to General Partner 185 185
Due from General Partner 11 11
During the years ended December 31, 1999 and 1998, affiliates of the Corporate
General Partner were entitled to receive 5% of gross receipts from all of the
Partnership's properties for providing property management services. The
Partnership paid to such affiliates approximately $284,000 and $283,000 for the
years ended December 31, 1999 and 1998, respectively.
An affiliate of the Corporate General Partner received reimbursement of
accountable administrative expenses amounting to approximately $131,000 and
$119,000 for the years ended December 31, 1999 and 1998, respectively.
On September 26, 1997, an affiliate of the General Partner purchased Lehman
Brothers Class "D" subordinated bonds of SASCO, 1992-M1. These bonds are secured
by 55 multi-family apartment mortgage loan pairs held in Trust, including Essex
Park Apartments, Colony House Apartments and Willowick Apartments owned by the
Partnership.
Several tender offers were made by various parties, including affiliates of the
general partners, during the fiscal years ended December 31, 1999 and 1998. As a
result of these tender offers, AIMCO and its affiliates currently own 29,657
limited partnership units in the Partnership representing 53.92% of the
outstanding units. It is possible that AIMCO or its affiliates will make one or
more additional offers to acquire additional limited partnership interests in
the Partnership for cash or in exchange for units in the operating partnership
of AIMCO. Consequently, AIMCO is in a position to influence all voting decisions
with respect to the Registrant. Under the Partnership Agreement, unitholders
holding a majority of the Units are entitled to take action with respect to a
variety of matters. When voting on matters, AIMCO would in all likelihood vote
the Units it acquired in a manner favorable to the interest of the Corporate
General Partner because of their affiliation with the Corporate General Partner.
Note F - Real Estate and Accumulated Depreciation
Investment Properties
<TABLE>
<CAPTION>
Initial Cost
To Partnership
(in thousands)
Buildings Cost
and Related Capitalized
Personal Subsequent to
Description Encumbrances Land Property Acquisition
Essex Park Apartments
<S> <C> <C> <C> <C>
Columbia, South Carolina $ 3,017 $ 473 $ 7,406 $ 2,419
Colony House Apartments
Murfreesboro, Tennessee 2,249 183 4,408 1,573
North River Village Apartments
Atlanta, Georgia 1,657 336 4,085 1,423
Willowick Apartments
Greenville, South Carolina 1,178 289 3,563 1,179
Totals $ 8,101 $ 1,281 $19,462 $ 6,594
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Gross Amount At Which Carried
At December 31, 1999
(in thousands)
Buildings
And Related
Personal Accumulated Date of Date Depreciable
Description Land Properties Total Depreciation Construction Acquired Life-Years
<S> <C> <C> <C> <C> <C> <C> <C>
Essex Park
Columbia, South $ 473 $ 9,825 $10,298 $ 6,122 1973 10/29/81 5-36
Carolina
Colony House
Murfreesboro,
Tennessee 183 5,981 6,164 3,565 1970-1972 10/31/81 5-36
North River
Village
Atlanta, Georgia 336 5,508 5,844 3,575 1969 04/21/82 5-32
Willowick
Greenville, South
Carolina 289 4,742 5,031 2,830 1974 06/30/82 5-32
Totals $1,281 $26,056 $27,337 $16,092
</TABLE>
Reconciliation of "Real Estate and Accumulated Depreciation":
December 31,
1999 1998
(in thousands)
Investment Properties
Balance at beginning of year $26,232 $25,880
Property improvements 1,105 352
Balance at end of year $27,337 $26,232
Accumulated Depreciation
Balance at beginning of year $15,143 $14,229
Additions charged to expense 949 914
Balance at end of year $16,092 $15,143
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1999 and 1998, is approximately $30,423,000 and $29,318,000,
respectively. The accumulated depreciation taken for Federal income tax purposes
at December 31, 1999 and 1998, is approximately $26,097,000 and $25,551,000,
respectively.
<PAGE>
Note G - Segment Reporting
Description of the types of products and services from which the reportable
segment derives its revenues
The Partnership has one reportable segment: residential properties. The
Partnership's residential property segment consists of four apartment complexes
located in Georgia, South Carolina (2), and Tennessee. The Partnership rents
apartment units to tenants for terms that are typically twelve months or less.
Measurement of segment profit or loss
The Partnership evaluates performance based on segment profit (loss) before
depreciation. The accounting policies of the reportable segment are the same as
those of the Partnership as described in the summary of significant accounting
policies.
Factors management used to identify the enterprise's reportable segment
The Partnership's reportable segment consists of investment properties that
offer similar products and services. Although each of the investment properties
is managed separately, they have been aggregated into one segment as they
provide services with similar types of products and customers.
Segment information for the years ended December 31, 1999 and 1998 is shown in
the tables below. The "Other" column includes partnership administration related
items and income and expense not allocated to the reportable segment.
1999 Residential Other Totals
(in thousands)
Rental income $ 5,225 $ -- $ 5,225
Other income 310 15 325
Interest expense 750 -- 750
Depreciation 949 -- 949
General and administrative expense -- 236 236
Segment profit (loss) 999 (221) 778
Total assets 12,811 277 13,088
Capital expenditures for investment
properties 1,105 -- 1,105
1998 Residential Other Totals
(in thousands)
Rental income $ 5,102 $ -- $ 5,102
Other income 360 28 388
Interest expense 746 -- 746
Depreciation 914 -- 914
General and administrative expense -- 205 205
Segment profit (loss) 971 (177) 794
Total assets 12,901 364 13,265
Capital expenditures for investment
properties 352 -- 352
Note H - Legal Proceedings
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the Corporate General Partner and several of their affiliated
partnerships and corporate entities. The action purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia Affiliates") of interests in certain general partner entities, past
tender offers by Insignia Affiliates to acquire limited partnership units, the
management of partnerships by Insignia Affiliates and the Insignia Merger (see
"Note B - Transfer of Control"). The plaintiffs seek monetary damages and
equitable relief, including judicial dissolution of the Partnership. On June 25,
1998, the Corporate General Partner filed a motion seeking dismissal of the
action. In lieu of responding to the motion, the plaintiffs have filed an
amended complaint. The Corporate General Partner filed demurrers to the amended
complaint which were heard February 1999. Pending the ruling on such demurrers,
settlement negotiations commenced. On November 2, 1999, the parties executed and
filed a Stipulation of Settlement settling claims, subject to final court
approval, on behalf of the Partnership and all limited partners who own units as
of November 3, 1999. Preliminary approval of the settlement was obtained on
November 3, 1999 from the Superior Court of the State of California, County of
San Mateo, at which time the Court set a final approval hearing for December 10,
1999. Prior to the December 10, 1999 hearing the Court received various
objections to the settlement, including a challenge to the Court's preliminary
approval based upon the alleged lack of authority of class plaintiffs' counsel
to enter the settlement. On December 14, 1999, the Corporate General Partner and
its affiliates terminated the proposed settlement. Certain plaintiffs have filed
a motion to disqualify some of the plaintiffs' counsel in the action. The
Corporate General Partner does not anticipate that costs associated with this
case will be material to the Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
Note I - Change in Accounting Principle
Effective January 1, 1999, the Partnership changed its method of accounting to
capitalize the cost of exterior painting and major landscaping on a prospective
basis. The Partnership believes that this accounting principle change is
preferable because it provides a better matching of expenses with the related
benefit of the expenditures and it is consistent with industry practice and the
policies of the Corporate General Partner. The effect of the change in 1999 was
to increase net income by approximately $223,000 ($4.02 per limited partnership
unit). The cumulative effect, had this change been applied to prior periods, is
not material. The accounting principle change will not have an effect on cash
flow, funds available for distribution or fees payable to the Corporate General
Partner and affiliates.
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons Compliance
with Section 16(a) of the Exchange Act
The Registrant has no officers or directors. The Corporate General Partner is
Shelter Realty III Corporation. The names and ages of, as well as the position
and offices held by, the present executive officers and director of the
Corporate General Partner are set forth below. There are no family relationships
between or among any officers or directors.
Name Age Position
Patrick J. Foye 42 Executive Vice President and Director
Martha L. Long 40 Senior Vice President and Controller
Patrick J. Foye has been Executive Vice President and Director of the Corporate
General Partner since October 1, 1998. Mr. Foye has served as Executive Vice
President of AIMCO since May 1998. Prior to joining AIMCO, Mr. Foye was a
partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to
1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow
offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long
Island Power Authority and serves as a member of the New York State
Privatization Council. He received a B.A. from Fordham College and a J.D. from
Fordham University Law School.
Martha L. Long has been Senior Vice President and Controller of the Corporate
General Partner and AIMCO since October 1998, as a result of the acquisition of
Insignia Financial Group, Inc. From June 1994 until January 1997, she was the
Controller for Insignia, and was promoted to Senior Vice President - Finance and
Controller in January 1997, retaining that title until October 1998. From 1988
to June 1994, Ms. Long was Senior Vice President and Controller for The First
Savings Bank, FSB in Greenville, South Carolina.
Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to
the Registrant under Rule 16a-3(e) during the Registrant's most recent fiscal
year and Forms 5 and amendments thereto furnished to the Registrant with respect
to its most recent fiscal year, the Registrant is not aware of any director,
officer, beneficial owner of more than ten percent of the units of limited
partnership interest in the Registrant that failed to file on a timely basis, as
disclosed in the above Forms, reports required by section 16(a) of the Exchange
Act during the most recent fiscal year or prior fiscal years except as follows:
AIMCO Properties, L.P. and its joint filers failed to timely file a Form 3 with
respect to its acquisition of Units and AIMCO and its joint filers failed to
timely file a Form 4 with respect to its acquisition of Units.
Item 10. Executive Compensation
None of the directors and officers of the Corporate General Partner received any
remuneration from the Registrant.
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
Except as noted below, as of December 31, 1999, no person or entity was known by
the Registrant to own of record or beneficially more than 5% of the Limited
Partnership Units of the Registrant.
Number of Units Percentage
Insignia Properties, LP 18,632 33.88%
(an affiliate of AIMCO)
AIMCO Properties, LP 11,025 20.04%
(an affiliate of AIMCO)
Insignia Properties LP is indirectly ultimately owned by AIMCO. Its business
address is 55 Beattie Place, Greenville, SC 29602.
AIMCO Properties, LP is indirectly controlled by AIMCO. Its business address is
2000 South Colorado Blvd., Denver, Colorado 80222.
No director or officer of the Corporate General Partner owns any Units. The
Corporate General Partner owns 200 Units as required by the terms of the
Partnership Agreement governing the Partnership.
Item 12. Certain Relationships and Related Transactions
The Partnership has no employees and is dependent on the Corporate General
Partner and its affiliates for the management and administration of all
partnership activities. The Partnership Agreement provides for (i) payments to
affiliates for services and (ii) reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership. The following amounts were paid or
accrued to the Corporate General Partner and affiliates during the years ended
December 31, 1999 and 1998:
1999 1998
(in thousands)
Property management fees (included in operating
expenses) $ 284 $ 283
Reimbursement for services of affiliates,
(included in operating, general and
administrative expenses, and investment
properties) 131 119
Due to General Partner 185 185
Due from General Partner 11 11
During the years ended December 31, 1999 and 1998, affiliates of the Corporate
General Partner were entitled to receive 5% of gross receipts from all of the
Partnership's properties for providing property management services. The
Partnership paid to such affiliates approximately $284,000 and $283,000 for the
years ended December 31, 1999 and 1998, respectively.
An affiliate of the Corporate General Partner received reimbursement of
accountable administrative expenses amounting to approximately $131,000 and
$119,000 for the years ended December 31, 1999 and 1998, respectively.
On September 26, 1997, an affiliate of the General Partner purchased Lehman
Brothers Class "D" subordinated bonds of SASCO, 1992-M1. These bonds are secured
by 55 multi-family apartment mortgage loan pairs held in Trust, including Essex
Park Apartments, Colony House Apartments and Willowick Apartments owned by the
Partnership.
Several tender offers were made by various parties, including affiliates of the
general partners, during the fiscal years ended December 31, 1999 and 1998. As a
result of these tender offers, AIMCO and its affiliates currently own 29,657
limited partnership units in the Partnership representing 53.92% of the
outstanding units. It is possible that AIMCO or its affiliates will make one or
more additional offers to acquire additional limited partnership interests in
the Partnership for cash or in exchange for units in the operating partnership
of AIMCO. Consequently, AIMCO is in a position to influence all voting decisions
with respect to the Registrant. Under the Partnership Agreement, unitholders
holding a majority of the Units are entitled to take action with respect to a
variety of matters. When voting on matters, AIMCO would in all likelihood vote
the Units it acquired in a manner favorable to the interest of the Corporate
General Partner because of their affiliation with the Corporate General Partner.
<PAGE>
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 18, Independent Accountants' Preferability Letter for Change
in Accounting Principle, is filed as an exhibit to this report.
Exhibit 27, Financial Data Schedule, is filed as an exhibit to this
report.
(b) Reports on Form 8-K filed in the fourth quarter of 1999:
None.
<PAGE>
SIGNATURE
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SHELTER PROPERTIES III
By: Shelter Realty III Corporation
Corporate General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Martha L. Long
Martha L. Long
Senior Vice President and
Controller
Date:
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Partnership and in the capacities and on the
dates indicated.
/s/Patrick J. Foye Executive Vice President Date:
Patrick J. Foye and Director
/s/Martha L. Long Senior Vice President and Date:
Martha L. Long Controller
<PAGE>
Shelter Properties III
EXHIBIT INDEX
Exhibit
2.1 Agreement and Plan of Merger, dated as of October 1, 1998, by and
between AIMCO and IPT.
3 See Exhibit 4(a)
4 (a) Amended and Restated Certificate and Agreement of Limited
Partnership, [included as Exhibit A to the Prospectus of Registrant
dated September 2, 1981 contained in Amendment No. 1 to Registration
Statement No. 2-72567 of Registrant filed September 2, 1981 (the
"Prospectus") and incorporated herein by reference].
(b) Subscription Agreements and Signature Pages [Filed with Amendment No.
1 of Registration Statement No. 2-72567 of Registrant and incorporated
herein by reference].
(c) Real Estate Note and Deed to Secure Debt and Security Agreement
between Pacific Mutual Life Insurance Company and Shelter Properties
III to acquire North River Village Apartments.*
(d) Modification Agreement between Citibank, N.A. and Southern Associates
Limited Partnership and a Title to Real Estate between Southern
Associates Limited Partnership and Shelter Properties III to acquire
Essex Park Apartments.*
*Filed as Exhibit 4(c) and 4(d), respectively, to Form 10-K of Registrant
for year ended December 31, 1987 and incorporated herein by reference.
10(i) Contract related to acquisition of properties.
(a) Purchase Agreement dated July 1, 1981 and First Addendum to Purchase
Agreement dated August 4, 1981 between Colony House of Murfreesboro
and U.S. Shelter Corporation to purchase Colony House Apartments.**
(b) Purchase Agreement dated July 31, 1981, between Southern Associated
Limited Partnership and U.S. Shelter Corporation to purchase Essex
Park Apartments.**
**Filed as Exhibits 12(a) and 12(b), respectively, to Amendment No. 1 of
Registration Statement No. 2-72567 of Registrant filed September 2,
1981 and incorporated herein by reference.
(c) Purchase Agreement dated December 3, 1981 between Plantation Company
of Georgia and Shelter Properties III to purchase River Parkway
Apartments. [Filed with Form 8-K of Registrant dated November 30, 1981
and incorporated herein by reference.]
(d) Purchase Agreement dated April 15, 1982 between North River Village
Joint Venture (a partnership) and U.S. Shelter Corporation to purchase
North River Village Apartments. [Filed with Form 8-K of Registrant
dated April 21, 1982 and incorporated herein by reference.]
(e) Purchase Agreement dated May 14, 1982 between Lincoln Willowick
Greenville Associates and U.S. Shelter Corporation to purchase
Willowick Apartments. [Filed with Form 8-K of Registrant dated May 14,
1982 and incorporated herein by reference.]
(f) Contract dated June 12, 1986, between Shelter Properties III and
Thomas J. Gochberg, William T. Bozarth and Michael J. Weinburger, as
Trustees of Security Capital Real Estate Fund to sell River Parkway
Apartments. [Filed as Exhibit 10(f) to Form 10-K of Registrant for
year ended December 31, 1987 and incorporated herein by reference.]
10(ii) Form of Management Agreement with U.S. Shelter Corporation
subsequently assigned to Shelter Management Group, L.P. (now known as
Insignia Management, L.P.) [Filed with Amendment No. 1 to Registration
Statement, No. 2-72567 of Registrant and incorporated herein by
reference.]
10(iii) Contracts related to refinancing the debt:
(a) First Deeds of Trust and Security Agreements dated October 28, 1992
between Shelter Properties III and Wesley D. Turner (Trustee) and
First Commonwealth Realty Credit Corporation, a Virginia Corporation,
securing the following properties: Colony House, Essex Park, and
Willowick.***
(b) Second Deeds of Trust and Security Agreements dated October 28, 1992
between Shelter Properties III and Wesley D. Turner (Trustee) and
First Commonwealth Realty Credit Corporation, a Virginia Corporation,
securing the following properties: Colony House, Essex Park, and
Willowick.***
(c) First Assignments of Leases and Rents dated October 28, 1992 between
Shelter Properties III and Wesley D. Turner (Trustee) and First
Commonwealth Realty Credit Corporation, a Virginia Corporation,
securing the following properties: Colony House, Essex Park, and
Willowick.***
(d) Second Assignments of Leases and Rents dated October 28, 1992 between
Shelter Properties III and Wesley D. Turner (Trustee) and First
Commonwealth Realty Credit Corporation, a Virginia Corporation,
securing the following properties: Colony House, Essex Park, and
Willowick.***
(e) First Deeds of Trust Notes dated October 28, 1992 between Shelter
Properties III and Wesley D. Turner (Trustee) and First Commonwealth
Realty Credit Corporation, relating to the following properties:
Colony House, Essex Park, and Willowick.***
(f) Second Deeds of Trust Notes dated October 28, 1992 between Shelter
Properties III and Wesley D. Turner (Trustee) and First Commonwealth
Realty Credit Corporation, relating to the following properties:
Colony House, Essex Park, and Willowick.***
***Filed as Exhibit 10(iii) (a) through (f), respectively, to Form 10-KSB
of Registrant for year ended December 31, 1992 and incorporated herein
by reference.
(g) First Deed to Secure Debt and Security Agreement dated September 30,
1993 between North River Village III Limited Partnership and Lexington
Mortgage Company, a Virginia Corporation receiving North River
Village.****
(h) Second Deed to Secure Debt and Security Agreement dated September 30,
1993 between North River Village III Limited Partnership and Lexington
Mortgage Company, a Virginia Corporation receiving North River
Village.****
(i) First Assignment of Leases and Rents dated September 30,
1993 between North River Village III Limited Partnership and
Lexington Mortgage Company, a Virginia Corporation receiving
North River Village.****
(j) Second Assignment of Leases and Rents dated September 30, 1993
between North River Village III Limited Partnership and
Lexington Mortgage Company, a Virginia Corporation receiving
North River Village.****
(k) First Real Estate Note dated September 30, 1993 between North
River Village III Limited Partnership and Lexington Mortgage
Company, a Virginia Corporation relating to North River
Village.****
(l) Second Real Estate Note dated September 30, 1993 between North
River Village III Limited Partnership and Lexington Mortgage
Company, a Virginia Corporation relating to North River
Village.****
****Filed as Exhibit 10(iii) (a) through (f) of Form 10QSB for
quarter ended September 30, 1993, and incorporated herein by
reference.
18 Independent Accountants' Preferability Letter for Change in
Accounting Principle, is filed as an exhibit to this report.
27 Financial Data Schedule.
99 (a) Prospectus of Registrant dated September 2, 1981
[included in Registration Statement No. 2-72567, of
Registrant] and incorporated herein by reference.
(b) Agreement of Limited Partnership for North River Village III
between Shelter III GP Limited Partnership and Shelter
Properties III entered into April 30, 1992. [Filed as Exhibit
28(b) to Form 10-KSB of Registrant for year ended December 31,
1992 and incorporated herein by reference.]
<PAGE>
Exhibit 18
February 24, 2000
Mr. Patrick J. Foye
Executive Vice President
Shelter Realty III Corporation
Corporate General Partner of Shelter Properties III
55 Beattie Place
P.O. Box 1089
Greenville, South Carolina 29602
Dear Mr. Foye:
Note I of Notes to the Consolidated Financial Statements of Shelter Properties
III included in its Form 10-KSB for the year ended December 31, 1999 describes a
change in the method of accounting to capitalize exterior painting and major
landscaping, which would have been expensed under the old policy. You have
advised us that you believe that the change is to a preferable method in your
circumstances because it provides a better matching of expenses with the related
benefit of the expenditures and is consistent with policies currently being used
by your industry and conforms to the policies of the Corporate General Partner.
There are no authoritative criteria for determining a preferable method based on
the particular circumstances; however, we conclude that the change in the method
of accounting for exterior painting and major landscaping is to an acceptable
alternative method which, based on your business judgment to make this change
for the reasons cited above, is preferable in your circumstances.
Very truly yours,
/s/ Ernst & Young LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Shelter
Properties III 1999 Fourth Quarter 10-KSB and is qualified in its entirety by
reference to such 10-KSB filing.
</LEGEND>
<CIK> 0000353282
<NAME> Shelter Properties III
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 655
<SECURITIES> 0
<RECEIVABLES> 437
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0 <F1>
<PP&E> 27,337
<DEPRECIATION> 16,092
<TOTAL-ASSETS> 13,088
<CURRENT-LIABILITIES> 0 <F1>
<BONDS> 7,895
0
0
<COMMON> 0
<OTHER-SE> 4,360
<TOTAL-LIABILITY-AND-EQUITY> 13,088
<SALES> 0
<TOTAL-REVENUES> 5,550
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,772
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 750
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 778
<EPS-BASIC> 13.95 <F2>
<EPS-DILUTED> 0
<FN>
<F1> Registrant has an unclassified balance sheet. <F2> Multiplier is 1.
</FN>
</TABLE>
