FORM 10-KSB--Annual or Transitional Report Under
Section 13 or 15(d)
(As last amended by 34-31905, eff. 4/26/93)
[X] Annual Report Under to Section 13 or 15(d) of the Securities Exchange Act
of 1934 [Fee Required]
For the fiscal year ended October 31, 1995
or
[ ] Transition Report Under to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required]
For the transition period.........to.........
Commission file number 0-10884
SHELTER PROPERTIES IV LIMITED PARTNERSHIP
(Name of small business issuer in its charter)
South Carolina 57-0721760
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices) (Zip Code)
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 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. [X]
State issuer's revenues for its most recent fiscal year. $10,439,263
State the aggregate market value of the voting partnership interests 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 a specified date within the past 60 days. $14,138,850
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the Prospectus of Registrant dated June 8, 1982 (included in
Registration Statement, No.2-77217, of Registrant) are incorporated by reference
into Parts I and III.
PART I
Item 1. Description of Business
Shelter Properties IV Limited Partnership (the "Registrant" or the
"Partnership") is engaged in the business of acquiring, operating and holding
real properties for investment. The Registrant acquired five existing apartment
properties during 1982 and 1983 and has been operating such properties since
that time with the exception of Rushcreek Village Apartments, which was deeded
back to the lender in lieu of foreclosure in June 1987, and The Corners
Apartments, which was foreclosed upon on November 2, 1992.
Commencing June 8, 1982, the Registrant offered through E. F. Hutton &
Company Inc. ("Hutton") up to 49,900 Units of Limited Partnership Interest (the
"Units") at a purchase price of $1,000 per Unit with a minimum purchase of 5
Units ($5,000) or 2 Units ($2,000) for an Individual Retirement Account. An
additional 100 Units were purchased by the Corporate General Partner. Limited
partners are not required to make any additional capital contributions.
The Units were registered under the Securities Act of 1933 via
Registration Statement No. 2-77217 (the "Registration Statement"). Reference is
made to the Prospectus of Registrant dated June 8, 1982 (the "Prospectus")
contained in said Registration Statement, which is incorporated herein by
reference thereto.
The offering terminated on December 15, 1982. Upon termination of the
offering, the Registrant had accepted subscriptions for 50,000 Units, including
100 Units purchased by the Corporate General Partner, for an aggregate of
$50,000,000. The Registrant invested approximately $38,000,000 of such proceeds
in five existing apartment properties and thereby completed its acquisition
program in March 1983 at approximately the expenditure level estimated in the
Prospectus. Funds not expended because they are held as reserves have been
invested by the Registrant, in accordance with the policy described in the
Prospectus, in U. S. Government securities or other highly liquid, short-term
investments where the General Partner believes there is appropriate safety of
principal.
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.
The Registrant has no employees. Management and administrative services
are performed by Shelter Realty IV Corporation, the Corporate General Partner,
and by Insignia Management Group, L.P., an affiliate of Insignia Financial
Group, Inc. ("Insignia"), the ultimate parent company of the Corporate General
Partner. Pursuant to a management agreement between them, Insignia Management
Group, L.P. provides property management services to the Registrant.
The real estate business in which the Partnership is engaged is highly
competitive and the Partnership is not a significant factor in this industry.
The Registrant's property is subject to competition from similar properties in
the vicinity in which the property is located. In addition, various limited
partnerships have been formed by the General Partners and/or their affiliates to
engage in business which may be competitive with the Registrant.
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>
Baymeadows Apartments 9/30/82 Fee ownership subject Apartment
Jacksonville, Florida to first and second 904 units
mortgages.
Quail Run Apartments 1/03/83 Fee ownership subject Apartment
Columbia, South Carolina to first and second 332 units
mortgages.
Countrywood Village Apartments 3/31/83 Fee ownership subject Apartment
Raleigh, North Carolina to first and second 384 units
mortgages.
</TABLE>
Schedule of Properties:
<TABLE>
<CAPTION>
Gross
Carrying Accumulated Federal
Property Value Depreciation Rate Method Tax Basis
<S> <C> <C> <C> <C> <C>
Baymeadows
Apartments $32,179,413 $15,925,364 5-36 yrs S/L $ 6,867,843
Quail Run
Apartments 12,896,933 5,670,015 5-34 yrs S/L 2,605,295
Countrywood
Village Apts. 13,015,828 6,978,375 5-30 yrs S/L 2,873,122
Total $58,092,174 $28,573,754 $12,346,260
</TABLE>
See Note A to the financial statements included in Item 7 for a description
of the Partnership's depreciation policy.
Schedule of Mortgages:
<TABLE>
<CAPTION>
Principal Principal
Balance At Stated Balance
October 31, Interest Period Maturity Due At
Property 1995 Rate Amortized Date Maturity
<S> <C> <C> <C> <C> <C>
Baymeadows
1st Mortgage $14,980,140 7.60% (1) 11/15/02 $11,553,964
2nd Mortgage 493,337 7.60% (1) 11/15/02 493,337
Quail Run
1st Mortgage 6,041,004 7.60% (1) 11/15/02 4,659,312
2nd Mortgage 198,947 7.60% (1) 11/15/02 198,947
Countrywood Village
1st Mortgage 4,680,078 7.60% (1) 11/15/02 3,609,707
2nd Mortgage 154,128 7.60% (1) 11/15/02 154,128
26,547,634
Less unamortized
discounts (1,478,462)
$25,069,172
<FN>
(1) The principal balance is being amortized over 257 months with a balloon
payment due November 15, 2002.
</FN>
</TABLE>
Average annual rental rate and occupancy for 1995 and 1994 for each property:
<TABLE>
<CAPTION>
Average Annual Average Annual
Rental Rates Occupancy
Property 1995 1994 1995 1994
<S> <C> <C> <C> <C>
Baymeadows $6,309 $6,259 96% 94%
Quail Run 6,783 6,602 96% 90%
Countrywood Village 6,159 5,731 95% 96%
</TABLE>
The Corporate General Partner attributes the increase in occupancy at Quail
Run to the increase in military personnel being transferred into the local base.
As noted under Item 1., Description of Business, the real estate industry is
highly competitive. All of the properties of the Partnership are subject to
competition from other residential apartment complexes in the area. The
Corporate General Partner believes that all of the properties are adequately
insured. The multi-family residential properties' lease terms are for one year
or less. No residential tenant leases 10% or more of the available rental
space.
Real estate taxes and rates in 1995 for each property were:
1995 1995
Billing Rate
Baymeadows $443,431* 2.20
Quail Run 168,002* 2.93
Countrywood 109,734* 1.24
*Due to these properties having a fiscal year end different than the real estate
tax year, tax expense does not agree to the 1995 billing.
Item 3. Legal Proceedings
The Secretary of Housing and Urban Development ("HUD") issued an
administrative Reasonable Cause Determination which found that a former tenant
of Baymeadows Apartments in Jacksonville, Florida had been discriminated against
on the basis of race in violation of the Fair Housing Act. Specifically, HUD
found that the tenant was discriminated against because of her race when she did
not get new carpet, a new oven and new dishwasher and when her lease was not
renewed. HUD's administrative investigation and Reasonable Cause Determination
names Insignia Management Corporation and Shelter Realty IV Corporation, along
with several current and former employees of each, as respondents. The case
proceeded to a civil complaint filed by the Department of Justice in the United
States District Court for the Middle District of Florida. At this time, the
outcome of this case is uncertain. Management believes that this claim is not
meritorious and intends to defend this claim vigorously. There can be no
assurance, however, that this claim will not have a material adverse effect upon
the business, financial condition or operations of the Partnership.
The general partner responsible for management of the Partnership's business
is Shelter Realty IV Corporation, a South Carolina corporation (the "Corporate
General Partner"). The only other general partner of the Partnership, N. Barton
Tuck, Jr. is effectively prohibited by the Partnership's partnership agreement
(the "Partnership Agreement") from participating in the management of the
Partnership. The Corporate General Partner is an indirect subsidiary of
Insignia Financial Group, Inc. ("Insignia"). The directors and officers of the
Corporate General Partner also serve as executive officers of Insignia.
The Corporate General Partner owns 100 Limited Partnership Units ("Units").
On May 27, 1995, an affiliate of the Corporate General Partner (the "Affiliated
Purchaser") acquired 11,050 Units at a price of $250.00 per Unit pursuant to a
tender offer (the "Affiliate Offer") described below. The Corporate General
Partner and the Affiliated Purchaser are, therefore, entitled to participate in
cash distributions made by the Partnership to its Unit holders. As of October
31, 1995, the Partnership had not made cash distributions to Unit holders since
1985. However, the Partnership made withholding tax payments in 1994 to taxing
authorities on behalf of the partners which was recorded as a distribution. In
December 1995, distributions of $1,000,000 were declared and paid. This
distribution was after the High River Offer expired. As a result, High River
(as defined below) received the cash distribution made during December 1995 for
those Units that it purchased in the High River Offer as defined below. In
addition, the Corporate General Partner was entitled to certain cash
distributions in respect of its general partner interest. The Corporate General
Partner has not received a cash distribution in respect of its general partner
interest since 1985.
As a result of the Affiliated Purchaser's acquisition of 22.1% of the
outstanding Units, the Affiliated Purchaser, an affiliate of the Corporate
General Partner and Insignia, may be in a position to significantly influence
any vote of the Unit holders. The Partnership has paid Insignia Management
Group, L.P. ("IMG"), an affiliate of the Corporate General Partner, property
management fees equal to 5% of the Partnership's apartment revenues for property
management services in each of the two years in the period ended October 31,
1995, pursuant to property management agreements. Property management fees paid
to IMG amounted to $486,071 and $513,750, respectively, for the years ended
October 31, 1994 and 1995. Insignia and its affiliates do not receive any fees
from the Partnership for the asset management or partnership administration
services they provide, although Insignia and its affiliates are reimbursed by
the Partnership for the expenses they incur in connection with providing those
services. The Partnership Agreement also provides for reimbursement to the
Corporate General Partner and its affiliates for costs incurred in connection
with administration of the Partnership's activities. Pursuant to these
provisions and in addition to the property management fees referred to above,
the Partnership paid the Corporate General Partner and its affiliates (including
the reimbursements to Insignia and its affiliates in connection with asset
management and partnership administration services) an aggregate of $194,478 and
$174,095, respectively, for the years ended October 31, 1994 and 1995. In
addition, at various times during the past two fiscal years an affiliate of
Insignia has held a promissory note or preferred stock issued by an unaffiliated
company that provides insurance brokerage services to the Partnership.
The terms of the Affiliated Purchaser's financing of the Affiliate Offer may
result in future potential conflicts of interest. The Affiliated Purchaser paid
for the Units it purchased pursuant to the Affiliate Offer with funds provided
by Insignia, and Insignia, in turn, obtained these funds from its working
capital. It is possible, however, that in connection with its future financing
activities, Insignia may cause or request the Affiliated Purchaser to pledge its
Units as collateral for loans, or otherwise agree to terms which provide
Insignia and the Affiliated Purchaser with incentives to generate substantial
near-term cash flow from the Affiliated Purchaser's investment in the Units. In
such a situation, the Corporate General Partner may experience a conflict of
interest in seeking to reconcile the best interests of the Partnership with the
need of its affiliates for cash flow from the Partnership's activities.
On April 27, 1995, the Affiliated Purchaser commenced the Affiliate Offer for
up to 30% of the Units at a price of $250.00 per Unit. The Affiliate Offer
expired on May 26, 1995. On May 27, 1995, an affiliate of the Corporate General
Partner, the Affiliated Purchaser, acquired 11,050 Units at a price of $250.00
per Unit pursuant to the Affiliate Offer. During the Affiliate Offer, Carl C.
Icahn and certain of his associates contacted Insignia about pursuing a variety
of possible transactions on a joint venture basis. During those discussions,
representatives of Insignia advised Mr. Icahn and his representatives that
Insignia did not wish to discourage or prevent any transaction which would
produce additional value for Unit holders. During those conversations, Mr.
Icahn and his representatives expressed a desire to make an equity investment in
the Affiliated Purchaser with a view to sharing in the economic benefits, if
any, to be derived by the Affiliated Purchaser from the Affiliate Offer. The
representatives of Insignia declined to agree to such an arrangement.
Following those discussions, at approximately 6:45 p.m. on Monday, May 22,
1995, the Corporate General Partner received a letter from High River Limited
Partnership ("High River") which stated that High River was commencing, by
public announcement, a cash tender offer for up to approximately 30% of the
outstanding Units at a price of $287.50 per Unit (the "High River Offer"). High
River sent similar letters to the Insignia affiliated corporate general partners
of five other limited partnerships. On May 23, 1995, Insignia issued a press
release which announced receipt of the letters.
From 12:00 noon on Tuesday, May 23 through late in the evening of Wednesday,
May 24, the Affiliated Purchaser, Insignia, and High River and their respective
counsel had a series of meetings and telephone conversations to explore a
possible joint venture relationship with respect to various real estate related
investment opportunities, including the Affiliate Offer. Representatives of
High River terminated the discussions. No agreement was reached with respect to
the Affiliated Offer or any other matter.
On the afternoon of Thursday, May 25, 1995, the Corporate General Partner
received a second letter from High River stating that High River had initiated a
tender offer for up to 40% of the outstanding Units at a price of $290.40 per
Unit. High River also issued a press release announcing the High River Offer
and that High River was commencing similar tender offers for units of limited
partnership interest in five other partnerships in which other Insignia
affiliates are the corporate general partners. Upon receiving the letter from
High River, Insignia issued its own press release announcing the terms of the
six High River offers.
Also on May 25, 1995, the Corporate General Partner received a copy of a
Complaint (the "High River Complaint") seeking, among other things, an order
from the United States District Court for the District of Delaware enjoining the
closing of the Affiliate Offer. The High River Complaint related to the
Affiliate Offer and to five other tender offers made by affiliates of Insignia
for units of limited partnership interests in other limited partnerships in
which other affiliates of Insignia are general partners. The High River
Complaint named as defendants the Affiliated Purchaser and each of the Insignia
affiliates making the five other tender offers; the Corporate General Partner
and the five other Insignia-affiliated general partners; and Insignia. The High
River Complaint contained allegations that, among other things, the Affiliated
Purchaser sought to acquire Units at highly inadequate prices, and that the
Affiliate Offer contained numerous false and misleading statements and omissions
of material facts. The alleged misstatements and omissions concerned, among
other things, the true value of the units; the true financial conditions of the
Partnership; the factors affecting the likelihood that properties owned by the
Partnership will be sold or liquidated in the near future; the liquidity and
value of the Units; the limited secondary market for Units; and the true nature
of the market for underlying assets. The High River Complaint also alleged that
the Affiliated Purchaser failed to comply with the requirements of Rule 13e-4
under the Securities Exchange Act of 1934.
On Friday, May 26, 1995, the United States District Court for the District of
Delaware denied High River's motion for a temporary restraining order to
postpone the closing of the Affiliate Offer. On May 26, 1995, Insignia issued a
press release announcing the Court's decision. High River subsequently
voluntarily withdrew the High River Complaint without prejudice.
On May 26, 1995, High River filed a Schedule 14D-1 relating to the High River
Offer and containing an Offer to Purchase and a related Assignment of
Partnership Interest. The Affiliate Offer expired as scheduled at midnight on
May 26, 1995. As filed on May 26, 1995, the High River Offer was conditioned
upon the Affiliate Offer being extended by at least 10 business days. High
River issued a press release, dated May 26, 1995, announcing that the extension
of the Affiliate Offer for 10 business days would be eliminated as a condition
to the High River Offer. Also on May 26, the Chairman and Chief Executive
Officer of Insignia received a letter from Mr. Icahn. In the letter, Mr. Icahn
accused Insignia of disregarding its "fiduciary responsibilities."
On Friday June 2, the High River Offer to Purchase and the related Assignment
of Partnership Interests were mailed to Unit holders. On Monday, June 5, the
Corporate General Partner delivered a letter to High River which requested that
High River cure certain alleged critical omissions, misstatements, and
deficiencies in the High River Offer by June 7, 1995. On June 7, the Corporate
General Partner received a letter from Mr. Icahn stating that High River does
not agree with the positions taken in the Corporate General Partner's June 5
letter.
On June 8, 1995, the Corporate General Partner commenced an action against
High River and Carl C. Icahn in the United States District Court for the
District of South Carolina. The complaint alleged that the High River Offer
misled Unit holders and violated federal securities laws. The Partnership
sought relief from High River's and Mr. Icahn's actions in the form of an
injunction against the High River Offer, a judgment declaring that the untrue
statements in and omissions from the High River Offer constitute violations of
the federal securities laws, and an order requiring High River to make
appropriate disclosures to correct all of the false and misleading statements in
and omissions from the High River Offer.
The Partnership and the Corporate General Partner recommended that the Unit
holders reject the High River Offer and not tender their Units pursuant to the
High River Offer. The Partnership and the Corporate General Partner stated that
they may reconsider their recommendation if High River makes additional
disclosures to the Unit holders as the Corporate General Partner requested. For
further information, see the Partnership's Solicitation/Recommendation Statement
on Schedule 14D-9 which was filed with the Securities and Exchange Commission on
June 9, 1995.
On June 12, 1995, High River filed an amendment to its Schedule 14D-1
containing a Supplement to its Offer to Purchase. The Supplement amended the
High River Offer to increase the number of Units being sought to all of the
outstanding Units and amended certain disclosures in the Offer to Purchase.
Persons claiming to own Units filed a purported class action and derivative
suit in the United States District Court for the District of South Carolina
seeking, among other things, an order enjoining the Affiliate Offer. On
Thursday, May 18, 1995, the Court denied plaintiffs' motion for a temporary
restraining order postponing the closing of the Affiliate Offer, which expired
as scheduled on May 26, 1995. Counsel for the parties are engaged in settlement
discussions and may continue such discussions.
The Complaint applies to the Affiliate Offer and to five other tender offers
being made by affiliates of Insignia for units of limited partnership interests
in other limited partnerships in which other affiliates of Insignia serve as
general partners. The Complaint names as defendants the Affiliated Purchaser
and each of the Insignia affiliates, including the five other tender offerors;
the Corporate General Partner and five other Insignia-affiliated general
partners; and four individuals who are officers and/or directors of Insignia,
the Corporate General Partner and/or the Affiliated Purchaser. The Complaint
contains allegations that, among other things, the defendants have intentionally
mismanaged the Partnership and the five other Partnerships (collectively the
"Partnerships") and acted contrary to the limited partners' best interests in
order to prolong the lives of the Partnerships and thus continue the revenues
derived by Insignia from the Partnerships while at the same time reducing the
demand for the Partnerships' units in the limited resale market for the units by
artificially depressing the trading prices for the units, in order to create a
favorable environment for the Affiliate Offer and the five other tender offers.
In the Complaint the plaintiffs also allege that in the Affiliate Offer and the
five other tender offers, the Affiliated Purchaser will acquire effective voting
control over the Partnerships at highly inadequate prices, and that the offers
to purchase and related tender offer documents contain numerous false and
misleading statements and omissions of material facts. The alleged
misstatements and omissions concern, among other things, the advantages to Unit
holders of tendering Units pursuant to the Affiliate Offer; the true value of
the Units; the true financial condition of the Partnerships; the factors
affecting the likelihood that properties owned by the Partnerships will be sold
or liquidated in the near future; the liquidity and value of the Units; the
limited secondary market for Units; and the true nature of the market for
underlying assets.
On Friday, June 16, plaintiffs filed an amended complaint which contained
allegations that, among other things, the defendants engaged in a plan by which
they misappropriated the Partnerships' assets and fraudulently induced limited
partners to sell units to the defendants at highly inadequate prices by causing
the Partnerships to take actions that artificially depressed the prices
available for units and by knowingly disseminating false and misleading
statements and omissions of material facts. The plaintiffs alleged that the
defendants breached fiduciary duties and violated federal securities law by
closing the Affiliate Offer and the five other tender offers made by affiliates
of Insignia for units in the other Partnerships with the knowledge that the
limited partners were not aware of the High River Offer. The plaintiffs further
alleged that the defendants, since the close of the Affiliate Offer, had caused
the Partnerships to enter into several wasteful transactions that had no
business purpose or benefit to the Partnerships solely in order to entrench
themselves in their positions of control over the Partnerships, with the effect
of impeding and possibly preventing nonaffiliated entities from making tender
offers that offer higher value to unit holders than defendants paid.
Subsequent to the filing of the lawsuit by the Corporate General Partner
against High River and Carl C. Icahn, the Corporate General Partner and High
River began discussions in an attempt to settle the lawsuit. On Friday, June
16, 1995, High River issued a press release announcing that the expiration date
of the High River Offer was extended until 12:00 midnight, New York City time on
Wednesday, June 28, 1995, and that High River and the Corporate General Partner
were engaged in settlement discussions.
On Saturday, June 17, the Affiliated Purchaser and Insignia entered into an
agreement with Carl C. Icahn and High River (the "Agreement") and the Corporate
General Partner, among others, entered into a letter agreement with High River
(together with the Agreement, the "Agreements"). The Agreements provide
generally that Insignia would not, and will not cause or permit its affiliates
to, actively oppose the High River Offer, but rather would take a neutral stance
with respect to the High River Offer, except in the case of a competing third
party bid made prior to the expiration of the High River Offer or the occurrence
of any event materially adversely affecting High River Offer. The High River
Offer would proceed in accordance with its terms, as amended, and the Corporate
General Partner would cooperate to facilitate the admission of High River as a
substitute limited partner with respect to any Units High River purchases
pursuant to the High River Offer in accordance with the terms of the Partnership
Agreement and applicable law. The Agreements limited High River's ability to
amend or extend the High River Offer. Apart from purchases made by High River
pursuant to the High River Offer, neither High River nor Insignia nor any of
their respective affiliates would purchase any additional Units pursuant to a
tender offer and can only purchase additional Units from time to time under
certain conditions specified in the Agreements. High River would vote on
certain matters concerning the Partnership as directed by Insignia. In
addition, High River and its affiliates are prohibited from soliciting proxies
with respect to the Partnership or otherwise making proposals concerning the
Partnership directly to other Unit holders. High River and Insignia have
certain buy-sell rights with respect to the other's Units which may be exercised
18 months after the effective date of the Agreements and annually thereafter and
at earlier or later dates under other circumstances specified in the Agreements,
including the proposal of certain transactions otherwise protected by the
Agreements. The party selling Units pursuant to the buy-sell transaction must
sell or cause to be sold to the other party all Units beneficially owned by the
first party and its affiliates.
Litigation initiated by the Corporate General Partner concerning the High
River Offer and litigation initiated by High River concerning the Affiliate
Offer was dismissed with prejudice and mutual releases were exchanged. On June
20, High River issued a press release announcing that the expiration date of the
High River Offer was extended until 12:00 midnight, New York City time on
Monday, July 3, 1995.
On July 20, 1995, the Partnership mailed a letter to limited partners of the
Partnership who tendered limited partnership units to the Affiliated Purchaser
in the recent tender offer. The letter notifies the limited partners that the
Affiliated Purchaser had offered to increase the amount paid to such limited
partners by an additional 45%.
On September 27, 1995, the parties to the purported class action and
derivative suit described above, entered into a stipulation to settle the
matter. The principal terms of the stipulation requires supplemental payments
to tendering limited partners aggregating approximately $6 million to be paid by
the Affiliated Purchaser; waiver by the Corporate General Partner and five other
Insignia affiliated general partners of any right to certain proceeds from a
sale or refinancing of the Partnership's properties; some restrictions on
Insignia's ability to vote the limited partner interest it acquired; payment of
$1.25 million for plaintiffs' attorney fees and expenses in the litigation; and
general releases of all the defendants. The Partnership has accrued
approximately $100,000 related to its allocated share of the $1.25 million.
Provisional Court approval of the stipulation is required before it will be
distributed to the class members for review. If a certain number of class
members opt out, the settlement may be cancelled and no assurance can be given
that this matter will be settled on the terms set forth above or otherwise.
Item 4. Submission of Matters to a Vote of Security Holders
During the fiscal year ended October 31, 1995, no matter was submitted to a
vote of unit holders through the solicitation of proxies or otherwise.
PART II
Item 5. Market for Partnership Equity and Related Partner Matters
As of October 31, 1995, there was minimal trading of the Units in the
secondary market establishing a high and low value of $250 and $190,
respectively, per Unit quoted in the September 1995 Stanger Report. As
disclosed in Item 3., Legal Proceedings, an affiliate of the Corporate General
Partner purchased 11,050 Units at $363 per Unit. In addition, High River
Limited Partnership purchased 4,263 units at $363 per Unit. There are 3,738
holders of record owning an aggregate of 50,000 Units. No public trading market
has developed for the Units, and it is not anticipated that such a market will
develop in the future. No distributions were declared in 1995 or 1994.
Subsequent to October 31, 1995, distributions of $1,000,000 were declared and
paid. Future distributions will depend on the levels of cash generated from
operations, property sales and the availability of cash reserves. Distributions
may also be restricted by the requirement to deposit net operating income (as
defined in the mortgage note) into the Reserve Account until the Reserve Account
is funded in an amount equal to $1,000 per apartment unit for each respective
property. (See Note A of the financial statements.)
Item 6. Management's Discussion and Analysis or Plan of Operation
This item should be read in conjunction with the consolidated financial
statements and other items contained elsewhere in this report.
Results of Operations
The Partnership's net loss as shown in the financial statements for the year
ended October 31, 1995, was $573,762 versus net income of $61,589 for the same
period in 1994 (see Note D of the financial statements for a reconciliation of
these amounts to the Partnership's federal taxable losses). The change from net
income to loss is primarily attributable to an increase in maintenance expense
due to additional renovations in 1995 which included painting and exterior
renovations of both Baymeadows and Countrywood. In addition, general and
administrative expenses increased as a result of increased legal costs for an
outstanding lawsuit as disclosed in Item 3, Legal Proceedings, as well as
increased administrative expenses in connection with the tender offers. Also,
tax expense has increased due to an increase in the assessed value of
Baymeadows. Partially offsetting these items is an increase in rental income
due to an increase in occupancy at Baymeadows and Quail Run, as previously
disclosed, and periodic rental rate increases. In addition, other income
increased due to additional tenant charges and increased revenue at Baymeadows'
ancillary operations. Other income also increased due to additional cash being
available for investments at higher interest rates. Offsetting these increases
in other income were decreases in other income at Quail Run and Countrywood due
to tax refunds received in 1994 with no similar refunds in 1995. Also, the loss
from disposal of property decreased due to no properties replacing roofs in
1994.
Management relies on the annual appraisals performed by outside appraisers to
assess the impairment of investment 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 judgement, plays a major role in arriving
at the conclusions of the indicated value from 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 Management. For the year ended October 31,
1995, no adjustments for the impairment of value were recorded.
As part of the ongoing business plan of the Partnership, the Corporate
General Partner monitors the rental market environment at each of its investment
properties to assess the feasibility of increasing rents, maintaining or
increasing occupancy levels, and protecting the Partnership from increases in
expense. As part of this plan, the Corporate General Partner attempts to
protect the Partnership from the burden of inflation-related increases in
expenses by increasing rents and maintaining a high overall occupancy level.
However, due to changing market conditions, which can result in the use of
rental concessions and rental reductions to offset softening market conditions,
there is no assurance that the Corporate General Partner will be able to sustain
this plan.
Liquidity and Capital Resources
During fiscal 1995, the Partnership recorded a net decrease in cash of
$361,203 versus an increase in cash of $636,894 for 1994. Cash provided by
operating activities increased primarily due to the change in accounts payable
resulting from the accrual of legal fees in connection with the outstanding
lawsuit disclosed in Item 3., Legal Proceedings. Also contributing to this
increase is the change in accrued taxes largely due to the timing of tax
payments at Countrywood Village. This increase is slightly offset by the
corresponding use of cash for tax escrows. Further offsetting the change is the
net loss for fiscal 1995 versus net income for fiscal 1994 as discussed above.
Cash used in investing activities increased primarily due to additional net
purchases of short-term investments and an increase in property improvements in
fiscal 1995 over fiscal 1994. These property improvements are mainly due to
major renovation projects at Baymeadows and Countrywood. Also contributing to
this increase is the receipt in 1994 of insurance proceeds from damage incurred
in 1993 with no such activity in 1995. Finally, cash used in financing
activities decreased resulting from a distribution to the partners paid in the
second quarter of 1994. This distribution was for withholding taxes due on
behalf of the partners resulting from the income associated with the foreclosure
of one of the Partnership'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 various properties to adequately maintain the
physical assets and other operating needs of the Partnership. Such assets are
currently thought to be sufficient for any near-term needs of the partnership.
The mortgage indebtedness of $25,069,172, net of discount, is amortized over 257
months with a balloon payment of $20,669,395 due on November 15, 2002, at which
time the properties will either be refinanced or sold. No cash distributions
were paid during fiscal year 1995. As previously discussed, the Partnership
paid the withholding taxes for the Partners to the taxing authorities in
connection with the gain reported on the foreclosure of The Corners. This was
recorded as a distribution in 1993 and paid in the second quarter of fiscal
1994. Subsequent to October 31, 1995, distributions of $1,000,000 were declared
and paid. Future cash distributions will depend on the levels of net cash
generated from operations, refinancings, property sales and cash reserves.
Item 7. Financial Statements
SHELTER PROPERTIES IV LIMITED PARTNERSHIP
LIST OF FINANCIAL STATEMENTS
Report of Independent Auditors
Consolidated Balance Sheet--October 31, 1995
Consolidated Statements of Operations--Years ended October 31, 1995 and
1994
Consolidated Statements of Changes in Partners' Capital--Years
ended October 31, 1995 and 1994
Consolidated Statements of Cash Flows--Years ended October 31, 1995 and
1994
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors
The Partners
Shelter Properties IV Limited Partnership
We have audited the accompanying balance sheet of Shelter Properties IV Limited
Partnership as of October 31, 1995, and the related statements of operations,
changes in partners' capital and cash flows for each of the two years in the
period ended October 31, 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 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 financial statements referred to above present fairly, in
all material respects, the financial position of Shelter Properties IV Limited
Partnership as of October 31, 1995, and the results of its operations and its
cash flows for each of the two years in the period ended October 31, 1995, in
conformity with generally accepted accounting principles.
/s/ERNST & YOUNG LLP
Greenville, South Carolina
December 3, 1995
SHELTER PROPERTIES IV LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
October 31, 1995
<S>
Assets <C> <C>
Cash:
Unrestricted $ 886,421
Restricted--tenant security deposits 237,450
Investments (Note B) 1,878,374
Accounts receivable 22,870
Escrow for taxes 717,134
Restricted escrows 1,634,367
Other assets 628,815
Investment properties (Notes C & F):
Land $ 3,442,097
Buildings and related personal property 54,650,077
58,092,174
Less accumulated depreciation (28,573,754) 29,518,420
$35,523,851
Liabilities and Partners' Capital
Liabilities
Accounts payable $ 467,980
Tenant security deposits 237,898
Accrued taxes 600,973
Other liabilities 322,249
Mortgage notes payable (Note C) 25,069,172
Partners' Capital
General partners $ 3,892
Limited partners (50,000 units
issued and outstanding) 8,821,687 8,825,579
$35,523,851
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
SHELTER PROPERTIES IV LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended October 31,
1995 1994
<S> <C> <C>
Revenues:
Rental income $ 9,832,916 $9,396,753
Other income 606,347 515,949
Total revenues 10,439,263 9,912,702
Expenses:
Operating 2,931,394 2,908,492
General and administrative 520,939 247,475
Property management fees 513,750 486,071
Maintenance 2,276,000 1,545,898
Depreciation 1,756,474 1,702,624
Interest 2,301,128 2,337,731
Property taxes 713,340 618,235
Total expenses 11,013,025 9,846,526
Loss on disposal of property -- (4,587)
Net (loss) income (Note D) $ (573,762) $ 61,589
Net (loss) income allocated to general
partners (1%) $ (5,738) $ 616
Net (loss) income allocated to limited
partners (99%) (568,024) 60,973
$ (573,762) $ 61,589
Net (loss) income per limited partnership unit $ (11.36) $ 1.22
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
SHELTER PROPERTIES IV LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partners Partners Total
<S> <C> <C> <C> <C>
Original capital
contributions 50,000 $ 2,000 $50,000,000 $50,002,000
Partners' capital at
October 31, 1993 50,000 $ 9,014 $ 9,328,738 $ 9,337,752
Net income for the year
ended October 31, 1994 -- 616 60,973 61,589
Partners' capital at
October 31, 1994 50,000 9,630 9,389,711 9,399,341
Net loss for the year
ended October 31, 1995 -- (5,738) (568,024) (573,762)
Partners' capital at
October 31, 1995 50,000 $ 3,892 $ 8,821,687 $ 8,825,579
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
SHELTER PROPERTIES IV LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended October 31,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (573,762) $ 61,589
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation 1,756,474 1,702,624
Amortization of discounts and loan costs 259,105 251,073
Loss on disposition of property -- 4,587
Change in accounts:
Restricted cash (9,493) (8,147)
Accounts receivable (901) 3,740
Escrow for taxes (61,272) 194,870
Other assets 77,613 (48,127)
Accounts payable 188,692 (378,930)
Tenant security deposit liabilities 9,941 8,147
Accrued taxes 154,428 (220,271)
Other liabilities (82,323) 68,623
Net cash provided by operating activities 1,718,502 1,639,778
Cash flows from investing activities:
Property improvements and replacements (639,237) (513,367)
Cash invested in short-term investments (6,893,682) (4,282,194)
Cash received from matured investments 6,022,054 4,242,051
Deposits to restricted escrows (62,613) (112,554)
Receipts from restricted escrows 106,923 215,191
Insurance proceeds from property damage -- 121,915
Net cash used in investing activities (1,466,555) (328,958)
Cash flows from financing activities:
Payments on mortgage notes payable (613,150) (568,413)
Partners' distributions -- (105,513)
Net cash used in financing activities (613,150) (673,926)
Net (decrease) increase in cash (361,203) 636,894
Cash at beginning of period 1,247,624 610,730
Cash at end of period $ 886,421 $ 1,247,624
Supplemental disclosure of cash flow information:
Cash paid for interest $ 2,043,154 $ 2,087,890
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY
Accounts payable was adjusted $105,000 at October 31, 1995, for non-cash amounts
in connection with property improvements and replacements.
See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES IV LIMITED PARTNERSHIP
Notes to Consolidated Financial Statements
Note A - Organization and Significant Accounting Policies
Organization: Shelter Properties IV Limited Partnership ( the Partnership or
"Registrant") was organized as a limited partnership under the laws of the State
of South Carolina pursuant to a Certificate and Agreement of Limited Partnership
filed August 21, 1981. The general partner responsible for management of the
Partnership's business is Shelter Realty IV Corporation, a South Carolina
corporation (the "Corporate General Partner"). The only other general partner
of the Partnership, N. Barton Tuck, Jr. is effectively prohibited by the
Partnership's partnership agreement (the "Partnership Agreement") from
participating in the management of the Partnership. The Corporate General
Partner is an indirect subsidiary of Insignia Financial Group, Inc.
("Insignia"). The directors and officers of the Corporate General Partner also
serve as executive officers of Insignia. The partnership agreement terminates
December 31, 2022. The Partnership commenced operations on July 22, 1982, and
completed its acquisition of apartment properties on March 31, 1983. The
Partnership operates three apartment properties located in the Southeast.
Principles of Consolidation: The financial statements include all the accounts
of the Partnership and its 99.9% owned partnership. All significant
interpartnership balances have been eliminated.
Uses 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 Partners. In the following notes to 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 statements
of cash flows captioned "net cash provided by operating activities" to net cash
from (used by) 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.
<TABLE>
<CAPTION>
1995 1994
<S> <C> <C>
Net cash provided by operating activities $1,718,502 $ 1,639,778
Property improvements and replacements (639,237) (513,367)
Payments on mortgage notes payable (613,150) (568,413)
Changes in reserves for net operating
liabilities (276,685) 380,095
Changes in restricted escrows, net 44,310 102,637
Insurance proceeds from casualty -- 121,915
Additional operating reserves -- (1,165,000)
Net cash from (used by) operations $ 233,740 $ (2,355)
</TABLE>
The General Partner believed it to be in the best interest of the Partnership to
reserve an additional $1,165,000 at October 31, 1994 to fund continuing capital
improvements at the three properties.
Distributions made from reserves no longer considered necessary by the general
partners are considered to be additional net cash from operations for allocation
purposes. Subsequent to October 31, 1995, cash distributions of $1,000,000 were
declared and paid.
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%.
Distributions may be restricted by the requirement to deposit net operating
income (as defined in the mortgage note) into the Reserve Account until the
Reserve Account is funded in an amount equal to $1,000 per apartment unit for
each respective property.
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 gains 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; 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 (loss) income as shown in the statements of operations and
changes in partners' capital for 1995 and 1994 were allocated 99% to the limited
partners and 1% to the general partners. Net (loss) income per limited
partnership unit for each such year was computed as 99% of net income divided by
50,000 weighted average units outstanding.
Other Reserves: The general partners may designate a portion of cash generated
from operations as "other reserves" in determining net cash from operations.
The 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 changes in other reserves during 1995 and 1994 were $(276,685) and
$380,095 respectively, which amounts were determined by considering changes in
the balances of restricted cash, accounts receivable, other assets, escrow for
taxes, accounts payable, tenant security deposit liabilities, accrued taxes and
other liabilities. At this time, the general partners expect to continue to
adjust other reserves based on the net change in the aforementioned account
balances.
Restricted Escrows:
Capital Improvement Account - At the time of the refinancing in 1992,
$865,800 of the proceeds were designated for a "capital improvement escrow" for
certain capital improvements. All capital improvements were complete as of
October 31, 1995, and all excess funds were returned for property operations.
Reserve Account - In addition to the Capital Improvement Reserve, a
general Reserve Account was established in 1992 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) from each
refinanced property to the respective reserve account until they equal $1,000
per apartment unit or $1,620,000 in total. The balance at October 31, 1995, is
$1,634,232, which includes interest.
Escrows for Taxes: These escrows are held by the Partnership and are designated
for the payment of real estate taxes.
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
over 27 1/2 years and (2) personal property additions over 7 years.
Present Value discounts: Periodically, the Partnership incurs debt at below
market rates for similar debt. Present value discounts are recorded on the
basis of prevailing market rates and are amortized on an interest method over
the life of the related debt.
Loan Costs: Loan costs are included in other assets and are being amortized on
a straight-line basis over the life of the loans.
Cash: The Partnership considers only unrestricted cash to be cash.
Certificates of deposit and repurchase agreements are considered to be
investments. At certain times the amount of cash deposited at a bank may exceed
the limit on insured deposits.
Investments: Securities held-to-maturity and available-for-sale: The Corporate
General Partner determines the appropriate classification of debt securities at
the time of purchase and reevaluates such designation as of each balance sheet
date. Debt securities are classified as held-to-maturity when the Partnership
has the positive intent and ability to hold the securities to maturity. Held-
to-maturity securities are stated at amortized cost, adjusted for amortization
of premiums and accretion of discounts to maturity. Such amortization is
included in investment income. Interest on securities classified as held-to-
maturity is included in investment income.
Marketable equity securities and debt securities not classified as held-to-
maturity are classified as available-for-sale. Presently, all of the
Partnership's investments are classified as held-to-maturity. Available-for-
sale securities are carried at fair value, with the unrealized gains and losses,
net of tax, reported in a separate component of shareholders' equity. The
amortized cost of debt securities in this category is adjusted for amortization
of premiums and accretion of discounts to maturity. Such amortization is
included in investment income. Realized gains and losses and declines in value
judged to be other-than-temporary on available-for-sale securities are included
in investment income. The cost of securities sold is based on the specific
identification method. Interest and dividends on securities classified as
available-for-sale are included in investment income.
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 expense as incurred.
Restricted Cash--Tenant Security Deposits: The Partnership requires security
deposits from all lessees for the duration of the lease. Deposits are refunded
when the tenant vacates the apartment if there has been no damage to the unit.
Investment Properties: Investment properties consist of three apartment
complexes and are stated at cost. 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 the 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 judgement, plays a major
role in arriving at the conclusions of the indicated value from 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. For the year ended October 31, 1995, no adjustments
for the impairment of value were recorded.
As of October 31, 1995, the Partnership adopted FASB Statement No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of, which requires impairment losses to be recognized for long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows are not sufficient to recover the assets' carrying
amount. The impairment loss is measured by comparing the fair value of the
asset to its carrying amount. The adoption of FASB No. 121 did not have a
material effect on the Partnership's financial statements.
Reclassification: Certain reclassifications have been made to the 1994
information to conform to the 1995 presentation.
Note B - Investments
Investments, stated at cost, consist of the following at October 31, 1995:
Interest Face Maturity
Rate Amount Cost Date
Certificate of Deposit 5.30% $ 101,290 $ 100,830 11/27/95
First Union
Ford Motor Credit Corp. 5.50% 502,000 499,741 11/30/95
Commercial Paper
First Union Master Note 5.25% 992,913 988,444 On Demand
Commercial Paper
Certificate of Deposit 5.30% 84,100 83,000 11/09/95
First Union
Certificate of Deposit 5.30% 25,221 25,000 11/10/95
First Union
Certificate of Deposit 5.30% 101,346 100,900 11/10/95
First Union
Fidelity Institutional
Money Market Fund 5.73% 75,235 75,000 On Demand
Commercial Paper
$1,882,105 1,872,915
Accrued Interest 5,459
$1,878,374
Note B - Investments - continued
The Partnership's investments are classified as held-to-maturity. The Corporate
General Partner believes the market value of the investments is approximately
the same as the cost.
Note C - Mortgage Notes Payable
The principal terms of mortgage notes payable are as follows:
<TABLE>
<CAPTION>
Principal Monthly Principal
Balance At Payment Stated Balance
October 31, Including Interest Maturity Due At
Property 1995 Interest Rate Date Maturity
<S> <C> <C> <C> <C> <C>
Quail Run
1st Mortgage $ 6,041,004 $ 50,770 7.60% 11/15/02 $ 4,659,312
2nd Mortgage 198,947 1,260 7.60% 11/15/02 198,947
Baymeadows
1st Mortgage 14,980,140 125,896 7.60% 11/15/02 11,553,964
2nd Mortgage 493,337 3,124 7.60% 11/15/02 493,337
Countrywood Village
1st Mortgage 4,680,078 39,332 7.60% 11/15/02 3,609,707
2nd Mortgage 154,128 976 7.60% 11/15/02 154,128
26,547,634
Less unamortized
present value
discounts (1,478,462)
$25,069,172
</TABLE>
The Partnership exercised interest rate buy-down options for the three
properties when the debt was refinanced, reducing the stated rate from 8.76% to
7.6%. The fee for the interest rate reduction amounted to $1,963,734 and is
being amortized as a loan discount on the interest method over the life of the
loans. The unamortized discount fee is reflected as a reduction of the mortgage
notes payable and increases the effective rate of the debt to 8.76%.
The mortgage notes payable are non-recourse and are secured by pledge of the
respective apartment properties and by pledge of revenues from the respective
apartment properties. The notes cannot be prepaid prior to November 15, 1997,
thereafter, they require prepayment penalties if repaid prior to maturity and
prohibit resale of the property subject to existing indebtedness.
Note C - Mortgage Notes Payable - continued
Scheduled principal payments of mortgage notes payable subsequent to October 31,
1995, are as follows:
1996 $ 661,407
1997 713,462
1998 769,615
1999 830,187
2000 895,526
Thereafter 22,677,437
$26,547,634
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 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 (loss) income and Federal
taxable (loss):
1995 1994
Net (loss) income as reported $ (573,762) $ 61,589
Add (deduct):
Amortization of present value discounts (22,354) (30,388)
Depreciation differences (1,484,765) (1,505,233)
Change in prepaid rental (68,789) 72,947
Accrued expenses (2,530) (2,150)
Accrued legal expenses 99,635 --
Other 17 4,444
Federal taxable loss $(2,052,548) $(1,398,791)
Federal taxable loss per limited
partnership unit $ (40.64) $ (27.70)
The following is a reconciliation between the Partnership's reported amounts and
Federal tax basis of net assets and liabilities:
Net assets as reported $ 8,825,579
Land and buildings 9,101,529
Accumulated depreciation (26,273,688)
Syndication 6,293,245
Other 160,693
Net liabilities - tax basis $ (1,892,642)
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 payments to
affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership. Balances and other transactions with
affiliates of Insignia Financial Group, Inc. in 1995 and 1994 are:
1995 1994
Property management fees $513,750 $486,071
Data processing services 46,160 46,392
Marketing services 1,060 1,830
Reimbursement for services of affiliates 126,875 104,965
The Partnership insures its properties under a master policy through an agency
and insurer unaffiliated with the Corporate General Partner. An affiliate of
the Corporate General Partner acquired, in the acquisition of a business,
certain financial obligations from an insurance agency which was later acquired
by the agent who placed the current year's master policy. The current agent
assumed the financial obligations to the affiliate of the Corporate General
Partner, who receives payments on these obligations from the agent. The amount
of the Partnership's insurance premiums accruing to the benefit of the affiliate
of the Corporate General Partner by virtue of the agent's obligations is not
significant.
Note F - Real Estate and Accumulated Depreciation
Investment Properties
<TABLE>
<CAPTION>
Initial Cost
To Partnership
Buildings Cost
and Related Capitalized
Personal Subsequent to
Description Encumbrances Land Property Acquisition
<S> <C> <C> <C> <C>
Baymeadows
Jacksonville, Florida $15,473,477 $1,883,435 $26,916,469 $3,379,509
Quail Run
Columbia, South Carolina 6,239,951 875,334 10,642,222 1,379,377
Countrywood Village
Raleigh, North Carolina 4,834,206 683,328 10,710,846 1,621,654
Totals $26,547,634 $3,442,097 $48,269,537 $6,380,540
</TABLE>
Note F - Real Estate and Accumulated Depreciation - continued
<TABLE>
<CAPTION>
Gross Amount At Which Carried
At October 31, 1995
Buildings
And Related
Personal Accumulated Date of Date Depreciable
Description Land Property Total Depreciation Construction Acquired Life-Years
<S> <C> <C> <C> <C> <C> <C> <C>
Baymeadows
Jacksonville, Florida $1,883,435 $30,295,978 $32,179,413 $15,925,364 1969-1975 09/30/82 5-36
Quail Run
Columbia, South 875,334 12,021,599 12,896,933 5,670,015 1970-1973 01/03/83 5-34
Countrywood Village
Raleigh, North 683,328 12,332,500 13,015,828 6,978,375 1973-1974 03/31/83 5-30
Totals $3,442,097 $54,650,077 $58,092,174 $28,573,754
</TABLE>
Reconciliation of Real Estate and Accumulated Depreciation :
<TABLE>
<CAPTION>
Years Ended October 31,
1995 1994
Real Estate
<S> <C> <C>
Balance at beginning of year $57,347,937 $56,856,368
Property improvements 744,237 513,367
Disposals of property -- (21,798)
Balance at End of Year $58,092,174 $57,347,937
Accumulated Depreciation
Balance at beginning of year $26,817,280 $25,131,867
Additions charged to expense 1,756,474 1,702,624
Disposals of property -- (17,211)
Balance at end of year $28,573,754 $26,817,280
</TABLE>
The aggregate cost of the real estate for Federal income tax purposes at October
31, 1995 and 1994 is $67,193,702 and $66,449,468, respectively. The accumulated
depreciation taken for Federal income tax purposes at October 31, 1995 and 1994
is $54,847,442 and $51,606,206, respectively.
Note G - Contingencies
Discrimination Claim: The Secretary of Housing and Urban Development ("HUD")
issued an administrative Reasonable Cause Determination which found that a
former tenant of Baymeadows Apartments in Jacksonville, Florida had been
discriminated against on the basis of race in violation of the Fair Housing
Act. Specifically, HUD found that the tenant was discriminated against because
of her race when she did not get new carpet, a new oven and new dishwasher and
when her lease was not renewed. HUD's administrative investigation and
Reasonable Cause Determination names Insignia Management Corporation and U.S.
Shelter IV L.P. along with several current and former employees of each, as
respondents. The case proceeded to a civil complaint filed by the Department
of Justice in the United States District Court for the Middle District of
Florida. At this time, the outcome of this case is uncertain. Accordingly,
no estimate of its impact on the Partnership's liquidity can be determined at
this time. Management believes that this claim is not meritorious and intends
to defend this claim vigorously. There can be no assurance, however, that this
claim will not have a material adverse effect upon the business, financial
condition or operations of the Partnership.
Tender Offer Litigation: The Corporate General Partner owns 100 Limited
Partnership Units ("Units"). On or about April 26 and 27, 1995, six entities
("Affiliated Purchaser") affiliated with the Partnership commenced tender offers
for limited partner interests in six limited partnerships, including the
Partnership (collectively, the "Shelter Properties Partnerships"). On May 27,
1995, the Affiliated Purchaser acquired 11,050 units of the Partnership pursuant
to the tender offer. On or about May 12, 1995, in the United States District
Court for the District of South Carolina, certain limited partners of the
Shelter Properties Partnerships commenced a lawsuit, on behalf of themselves, on
behalf of a putative class of plaintiffs, and derivatively on behalf of the
partnerships, challenging the actions taken by defendants (including Insignia,
the acquiring entities and certain officers of Insignia) in the management of
the Shelter Properties Partnerships and in connection with the tender offers and
certain other matters.
The plaintiffs alleged that, among other things: (i) the defendants
intentionally mismanaged the partnerships and acted contrary to the limited
partners' best interests by prolonging the existence of the partnerships in
order to perpetuate the revenues derived by Insignia and its affiliates from the
partnerships, (ii) the defendants' actions reduced the demand for the
partnerships' limited partner interests in the limited resale market by
artificially depressing the trading prices for limited partners interests in
order to create a favorable environment for the tender offers; (iii) through the
tender offers, the acquiring entities sought to acquire effective voting control
over the partnerships while paying highly inadequate prices; and (iv) the
documents disseminated to the class in connection with the tender offers
contained false and misleading statements and omissions of material facts
concerning such issues as the advantages to limited partners of tendering
pursuant to the tender offers, the true value of the interest, the true
financial condition of the partnerships, the factors affecting the likelihood
that properties owned by the partnerships will be sold or liquidated in the
near future, the liquidity and true value of the limited partner interests, the
reasons for the limited secondary market for limited partner interests, and the
true nature of the market for the underlying real estate assets owned by the
partnerships all in violation of the federal securities laws.
Note G - Contingencies - continued
On September 27, 1995, the parties entered into a stipulation to settle the
matter. The principal terms of the stipulation require supplemental payments to
tendering limited partners aggregating approximately $6 million to be paid by
Affiliated Purchaser; waiver by the Shelter Properties Partnership's general
partners of any right to certain proceeds from a sale or refinancing of the
partnerships' properties; some restrictions on Insignia's ability to vote the
limited partner interests it acquired; payment of $1.25 million for plaintiffs'
attorney fees and expenses in the litigation; and general releases of all the
defendants. The Partnership has accrued approximately $100,000 as its allocated
share of the $1.25 million. Provisional Court approval of the stipulation is
required before it will be distributed to the class members for review. If a
certain number of class members opt out, the settlement may be cancelled. No
assurance can be given that this matter will be settled on the terms, set forth
above or otherwise.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
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 Individual and Corporate
General Partners are as follows:
Individual General Partner - N. Barton Tuck, Jr., age 57, is the Individual
General Partner of the Registrant. Mr. Tuck is Chairman of GolfSouth
Management, Inc. Until August 1990, he served as Chairman and Chief Executive
Officer of U.S. Shelter Corporation ("Shelter"), the former parent of AmReal
Corporation (parent of the Corporate General Partner of the Partnership). For
six years prior to 1966, Mr. Tuck was employed in Greenville, South Carolina by
the certified public accounting firm of S.D. Leidesdorf & Company. From 1966 to
1970, he was a registered representative with the investment banking firm of
Harris Upham & Co., Inc. in Greenville, South Carolina. Since 1970, Mr. Tuck
has been engaged in arranging equity investments for individuals and
partnerships. Mr. Tuck is a graduate of the University of North Carolina. Mr.
Tuck has delegated to the Corporate General Partner all of his authority, as a
general partner of the Partnership, to manage and control the Partnership and
its business and affairs.
Corporate General Partner - The names and ages of, as well as the positions
and offices held by, the executive officers and directors of Shelter Realty IV
Corporation are set forth below. There are no family relationships between or
among any officers or directors.
Name Age Position
William H. Jarrard, Jr. 49 President and Director
Ronald Uretta 39 Vice President and Treasurer
John K. Lines, Esq. 36 Vice President and Secretary
Kelley M. Buechler 38 Assistant Secretary
Mr. Jarrard, who had previously served as Vice President, became President
in August 1994. In August 1994, Mr. Lines became Vice President and Secretary.
William H. Jarrard, Jr. has been President of the Corporate General Partner
since August 1994 and Managing Director - Partnership Administration of Insignia
since January 1991. During the five years prior to joining Insignia in 1991, he
served in similar capacities for U.S. Shelter.
Ronald Uretta has been Insignia's Chief Financial Officer, Secretary, and
Treasurer since January 1992. Since September 1990, Mr. Uretta has also served
as the Chief Financial Officer and Controller of Metropolitan Asset Group. From
May 1988 until September 1990, Mr. Uretta was a self-employed financial
consultant. From January 1978 until January 1988, Mr. Uretta was employed by
Veltri Raynor & Company, independent certified public accountants.
John K. Lines, Esq. has been Vice President and Secretary of the Corporate
General Partner since August 1994, Insignia's General Counsel since June 1994
and General Counsel and Secretary since July 1994. From May 1993 until June
1994, Mr. Lines was the Assistant General Counsel and Vice President of Ocwen
Financial Corporation, West Palm Beach, Florida. From October 1991 until May
1993, Mr. Lines was a Senior Attorney with Banc One Corporation, Columbus,
Ohio. From May 1984 until October 1991, Mr. Lines was an attorney with Squire
Sanders & Dempsey, Columbus, Ohio.
Kelley M. Buechler is Assistant Secretary of the Corporate General Partner
and Assistant Secretary of Insignia since 1991. During the five years prior to
joining Insignia in 1991, she served in similar capacities with U.S. Shelter.
Ms. Buechler is a graduate of the University of North Carolina.
Item 10. Executive Compensation
Neither the Individual General Partner nor any of the directors and
officers of the Corporate General Partner received any remuneration from the
Registrant.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Except as noted below, no person or entity was known by the Registrant to
be the beneficial owner of more than 5% of the Limited Partnership Units of the
Registrant as of October 31, 1995.
Number
Entity of Units Percentage
SP IV Acquisition, LLC 11,050 22.10%
High River Limited Partnership 4,263 8.53%
No director or officer of the Corporate General Partner owns any Units.
The Corporate General Partner owns 100 Units as required by the terms of the
partnership agreement governing the Partnership.
Item 12. Certain Relationships and Related Transactions
The Individual General Partner and the Corporate General Partner received
no cash distributions from operations as General or Limited Partners during or
with respect to, the fiscal year ended October 31, 1995. For a description of
the share of cash distributions from operations, if any, to which the general
partners are entitled, reference is made to the material contained in the
Prospectus under the heading "PROFITS AND LOSSES AND CASH DISTRIBUTIONS."
The Registrant has a property management agreement with Insignia Management
Group, L.P. pursuant to which Insignia Management Group, L.P. has assumed direct
responsibility for day-to-day management of the Partnership's properties. This
service includes the supervision of leasing, rent collection, maintenance,
budgeting, employment of personnel, payment of operating expenses, etc.
Insignia Management Group, L.P. receives a property management fee equal to 5%
of apartment revenues. During the fiscal year ended October 31, 1995, Insignia
Management Group, L.P. received $513,750 in fees for property management.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits:
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 fiscal year
1995:
None.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SHELTER PROPERTIES IV LIMITED PARTNERSHIP
By: Shelter Realty IV Corporation
Corporate General Partner
By: /s/William H. Jarrard, Jr.
William H. Jarrard, Jr.
President
Date: January 29, 1996
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the date indicated.
/s/William H. Jarrard, Jr. Date January 29, 1996
William H. Jarrard, Jr.
President and Director
/s/Ronald Uretta Date January 29, 1996
Ronald Uretta
Treasurer
(Principal Financial Officer
and Principal Accounting Officer)
EXHIBIT INDEX
Exhibit
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 June 8,
1982 contained in Amendment No. 1 to Registration Statement No. 2-
77217, of Registrant filed June 8, 1982 (the "Prospectus") and
incorporated herein by reference].
(b) Subscription Agreement and Signature Page [included as Exhibit 8 to the
Prospectus and incorporated herein by reference].
10(i) Contracts related to acquisition of properties:
(a) Real Estate Sales Agreement dated May 5, 1982, First Modification to
Real Estate Sales Agreement dated June 18, 1982 (filed as Exhibit 12(B)
to Amendment No. 1 to Registration Statement No. 2-77217 of Registrant
filed June 8, 1982 and incorporated herein by reference) and Second
Modification to Real Estate Sales Agreement dated September 30, 1982
between Baymeadows Associates and U.S. Shelter Corporation to purchase
Baymeadows Apartments (Filed as Exhibit 10(a) to Form 10-K of
Registrant dated January 26, 1983 and incorporated herein by
reference).
(b) Agreement for Purchase and Sale dated May 14, 1982 between Lincoln
Spartanburg Corners Associates and U.S. Shelter Corporation to purchase
The Corners Apartments. (Filed as Exhibit 12(A) to Amendment No. 1 to
Registration Statement, No. 2-77217, of Registrant filed June 8, 1982
and incorporated herein by reference).
(c) Real Estate Purchase Agreement dated October 11, 1982 and Second
Addendum to Real Estate Purchase Agreement dated December 10, 1982
between Rushcreek Village Apartments, Ltd. and U.S. Shelter Corporation
to purchase Rushcreek Village Apartments. (Filed as Exhibit 10(a) to
Form 8-K of Registrant dated December 15, 1982 and incorporated herein
by reference).
(d) Real Estate Purchase Agreement dated December 3, 1982 between Quail Run
Apartments, a Limited Partnership and Percival Partnership and U.S.
Shelter Corporation to purchase Quail Run Apartments. (Filed as
Exhibit 10(b) to Form 8-K of Registrant dated December 15, 1982 and
incorporated herein by reference).
(e) Real Estate Purchase Agreement dated March 13, 1983 between Europco
Management Company of America, Inc. and U.S. Shelter Corporation to
purchase Countrywood Village Apartments. (Filed as Exhibit 10 to Form
8-K of Registrant dated March 31, 1983 and incorporated herein by
reference).
(ii) Form of Management Agreement with U.S. Shelter Corporation subsequently
assigned to Shelter Management Group, L.P. (now known as Insignia
Management Group, L.P.) [Filed with Amendment No. 1 of Registration
Statement No. 2-77217 of Registrant filed June 8, 1982 and incorporated
herein by reference].
EXHIBIT INDEX
Exhibit
(iii) Contracts related to refinancing of debt:
(a) First Deeds of Trust and Security Agreements dated October 28, 1992
between Shelter Properties IV Limited Partnership and Joseph Philip
Forte (Trustee) and First Commonwealth Realty Credit Corporation, a
Virginia Corporation, securing the following properties: Baymeadows,
Quail Run and Countrywood Village.*
(b) Second Deeds of Trust and Security Agreements dated October 28, 1992
between Shelter Properties IV Limited Partnership and Joseph Philip
Forte (Trustee) and First Commonwealth Realty Credit Corporation, a
Virginia Corporation, securing the following properties: Baymeadows,
Quail Run and Countrywood Village.*
(c) First Assignments of Leases and Rents dated October 28, 1992 between
Shelter Properties IV Limited Partnership and Joseph Philip Forte
(Trustee) and First Commonwealth Realty Credit Corporation, a Virginia
Corporation, securing the following properties: Baymeadows, Quail Run
and Countrywood Village.*
(d) Second Assignments of Leases and Rents dated October 28, 1992 between
Shelter Properties IV Limited Partnership and Joseph Philip Forte
(Trustee) and First Commonwealth Realty Credit Corporation, a Virginia
Corporation, securing the following properties: Baymeadows, Quail Run
and Countrywood Village. *
(e) First Deeds of Trust Notes dated October 28, 1992 between Shelter
Properties IV Limited Partnership and First Commonwealth Realty Credit
Corporation, relating to the following properties: Baymeadows, Quail
Run and Countrywood Village.
(f) Second Deeds of Trust Notes dated October 28, 1992 between Shelter
Properties IV Limited Partnership and First Commonwealth Realty Credit
Corporation, relating to the following properties: Baymeadows, Quail
Run and Countrywood Village.*
*Filed as Exhibits 10 (iii) a through 10 (iii) f, respectively, to Form
10-KSB - Annual or Transitional Report filed January 29, 1993 and
incorporated herein by reference.
22 Subsidiaries of the Registrant.
27 Financial Data Schedule.
28 (a) Prospectus of Registrant dated June 8, 1982 (included in Registration
Statement No. 2-77217 of Registrant and incorporated herein by
reference).
(b) Agreement of Limited Partnership for Quail Run IV Limited Partnership
between Shelter IV GP Limited Partnership and Shelter Properties IV
Limited Partnership entered into on February 12, 1992. (Filed as
Exhibit 28 to Form 10-QSB - Quarterly or Transitional Report filed June
11, 1993 and incorporated herein by reference.)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extraced from Shelter
Properties IV Limited Partnership's 1995 10-KSB and is qualified in its entirety
by reference to such 10-KSB filing.
</LEGEND>
<CIK> 0000702174
<NAME> SHELTER PROPERTIES IV LIMITED PARTNERSHIP
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-END> OCT-31-1995
<CASH> 886,421
<SECURITIES> 1,878,374
<RECEIVABLES> 22,870
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 58,092,174
<DEPRECIATION> 28,573,754
<TOTAL-ASSETS> 35,523,851
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 25,069,172
0
0
<COMMON> 0
<OTHER-SE> 8,825,579
<TOTAL-LIABILITY-AND-EQUITY> 35,523,851
<SALES> 0
<TOTAL-REVENUES> 10,439,263
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 11,013,025
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,301,128
<INCOME-PRETAX> (573,762)
<INCOME-TAX> 0
<INCOME-CONTINUING> (573,762)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (573,762)
<EPS-PRIMARY> (11.36)
<EPS-DILUTED> 0
<FN>
<F1>The Registrant has an unclassified balance sheet.
</FN>
</TABLE>
EXHIBIT 22
SHELTER PROPERTIES IV LIMITED PARTNERSHIP
Subsidiary List
Name of Subsidiary State of Incorporation/Formation Date
Quail Run IV South Carolina 1992
Limited Partnership
Shelter IV GP South Carolina 1992
Limited Partnership
