<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended December 31, 1996
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number 0-13227
USAA Real Estate Income Investments I Limited Partnership
(Exact name of registrant as specified in its charter)
California 74-2325025
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8000 Robert F. McDermott Fwy., IH 10 West, Suite 600,
San Antonio, Texas 78230-3884
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (210)498-7391
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None None
Securities registered pursuant to section 12(g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTERESTS
(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
<PAGE>
State the aggregate market value of the voting stock held by non-affiliates of
the registrant: Not Applicable
DOCUMENTS INCORPORATED BY REFERENCE:
Certain portions of the prospectus of the registrant dated
November 16, 1984 as supplemented, filed pursuant to Rule 424(b)
or (c) under the Securities Act of 1933 are incorporated by
reference in Parts I and III.
<PAGE>
TABLE OF CONTENTS
PART I
Item 1. Business
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Submission of Matters to a Vote of Security Holders
PART II
Item 5. Market for the Registrant's Limited Partnership
Units and Related Security Holder Matters
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
PART III
Item 10. Directors and Executive Officers of the General Partner
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Item 13. Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K
Signatures
Index to Exhibits
<PAGE>
PART I
Item 1. Business
USAA Real Estate Income Investments I Limited Partnership
(the "Partnership") is a limited partnership formed in August
1984, under the California Revised Limited Partnership Act. The
Partnership has two primary business purposes: (i) to purchase
qualified income producing real properties; and (ii) to make
participating first mortgage loans on qualified income producing
properties. To the extent possible (i) all acquisitions of real
property will be made for cash (no acquisition indebtedness will
be incurred) and (ii) participating first mortgage loans will
earn fixed interest and will contain participation rights in the
underlying property's cash flow and net proceeds of sale or
refinancing and other items, or both.
Defined terms contained herein shall have the meaning set
forth in the Glossary contained in the Partnership Prospectus
dated November 16, 1984, filed pursuant to Rule 424(b) attached
as Exhibit 99.a, and incorporated herein by this reference.
The Partnership sold $27,305,000 in Units of Limited
Partnership Interests (54,610 Units at $500 per Unit) from the
commencement of the offering of Units on or about January 15,
1985, through the completion of the offering on May 30, 1985.
Limited Partners are not required to make any additional capital
contributions.
Proceeds available to the Partnership for investment were
used to acquire Volusia Point Shopping Center in 1985. In 1986,
the Partnership acquired one property (the Systech building,
formerly called Computer Associates Office Building) and funded
one first mortgage loan (Plaza on the Lake). Remaining offering
proceeds were used to repay the mortgage indebtedness on the
Systech building upon its maturity in 1988. See "Item 2.
Properties".
Competitive conditions for the Partnership's properties
in 1996 were as follows:
Volusia Point Shopping Center, located in Daytona Beach,
Florida is in the northwestern portion of Volusia County, at the
corner of U.S. Highway 92 (Volusia Avenue) and Bill Francis
Boulevard. The shopping center is in close proximity to the
Volusia Mall, the Daytona International Speedway and the new
Daytona USA International Racing Center which opened in mid 1996.
The location of the shopping center allows the retail tenants to
take advantage of the significant volume of traffic that is
attracted to the area. Occupancy at Volusia Point increased
throughout 1996 to 92% at year end, compared to approximately 95%
in the surrounding retail market. Lease rates at Volusia Point
during the fourth quarter are competitive with retail centers in
the area and range from $9.50 to $11.50 per square foot, net of
operating expenses. Due to the occupancy level at Volusia Point
and the stability of the market surrounding the property,
management believes the property is well positioned to sell.
Volusia Point Shopping Center will be actively marketed for sale
in 1997; however, no formal plan exists for the ultimate
disposition of the property.
<PAGE>
The Systech building, located in northern San Diego,
California, was vacated in August 1993 upon the lease expiration
of the prior single tenant, and remained vacant throughout 1994
during building renovations and improvements and re-tenanting
efforts. A lease for approximately 79% of the building commenced
in March 1995 with Systech Computer Corporation; the lease
provided for an increase in occupancy to 98% in March 1996.
After a change in their business requirements, the lease with
Systech Computer Corporation was amended in July 1996 to allow
for scheduled decreases in occupied square footage. At the same
time, a 42-month lease was executed with Integrated Systems, Inc.
("ISI"). ISI is scheduled to occupy additional space as Systech
Computer Corporation downsizes throughout the remainder of their
lease term which expires in March 1998. As a result of the above
leasing activity, the Systech building was 100% leased as of
December 31, 1996. During the years ended December 31, 1996 and
1995, the Partnership recorded rental income of approximately
$493,000 and $414,000, respectively, from a major tenant in the
computer industry. This income represented approximately 35% and
37% of total rental income of the Partnership for 1996 and 1995,
respectively.
Due to the configuration of the Systech building, it
competes in both the office and research and development ("R&D")
markets of the Sorrento Valley submarket of San Diego. By the
end of 1996, occupancy in the San Diego office and R & D markets
was approximately 91% and 97%, respectively. The markets
surrounding the Systech building are stable. As a result,
management is currently analyzing the feasibility of marketing
this property for sale in the near term.
Plaza on the Lake, located in Austin, Texas, was the
underlying asset for the mortgage loan funded by the Partnership.
On January 31, 1996, per the terms of the loan documents, the
Partnership received the full principal balance of $5,440,000 of
the mortgage loan receivable from the borrower.
See "Item 2 Properties" for further information
pertaining to the status of the Partnership's properties.
The Partnership has no employees; it has, however,
entered into an Advisory Agreement with USAA Real Estate Company
(the "Advisor"), a wholly-owned subsidiary of USAA Capital
Corporation, which is a wholly-owned subsidiary of United
Services Automobile Association ("USAA"). The Advisor is
responsible for managing the day-to-day operations of the
Partnership.
The General Partner of the Partnership is USAA Investors
I, Inc. (the "General Partner"), a Texas corporation and a
subsidiary of the Advisor. The General Partner has the general
responsibility for management of the Partnership's business and
oversees the activities of the Advisor.
<PAGE>
Item 2. Properties
The Partnership owns the properties described below as of
December 31, 1996. Also described is the property underlying
the mortgage loan funded by the Partnership.
Location Description of Property
Daytona Beach, Florida Volusia Point Shopping Center: A
shopping center containing 76,579
gross rentable square feet situated
on approximately 9 acres. As of
December 31, 1996, the property was
92% leased and average monthly
rental was approximately $61,000.
There are lease expirations totaling
approximately 3% of total square
footage in 1997 which are subject to
market risk. There is no debt on
this property. The Partnership has
100% fee-simple ownership.
San Diego, California Systech building: An office
building containing 54,094 gross
rentable square feet situated on
approximately 2 acres of land. As
of December 31, 1996, the property
was 100% leased and average monthly
rental was approximately $49,000.
There are no lease expirations in
1997. There is no debt on this
property. The Partnership has 100%
fee-simple ownership.
Austin, Texas Plaza on the Lake: An office
building containing 118,063 gross
rentable square feet situated on
approximately 4.6 acres of land. On
January 31, 1986, the Partnership
funded a first mortgage note on this
property in the amount of
$5,440,000. Per the terms of the
loan agreement, the principal
balance of $5,440,000 was received
by the Partnership on January 31,
1996 and the underlying note was
paid in full.
See notes 3, 4, 5 and 8 of Notes to Financial Statements
in Item 8 for further discussion relating to the properties and
encumbrances thereon.
Item 3. Legal Proceedings
There are no material legal proceedings pending to which
the General Partner or the Partnership is a party or to which any
of the Partnership's properties are subject.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders
during the fourth quarter of the fiscal year covered by this
report through solicitation of proxies or otherwise.
PART II
Item 5. Market for the Registrant's Limited Partnership Units
and Related Security Holder Matters
There is no established public trading market for the
Limited Partnership Units ("the Units"), and it is not
anticipated that a public market will develop. Upon request,
Real Estate Limited Partnership Investor Services, a department
in USAA Real Estate Company, may assist a Limited Partner
desiring to transfer his Units. The purchase price for the Units
upon resale and all other terms of a resale transaction are
subject to negotiations between the buyer and the seller. The
limited market for the Units may adversely affect the value of
the Units.
As of December 31, 1996, there were 6,370 Limited
Partners of the Partnership, owning an aggregate of 54,610 Units.
During the year ended December 31, 1996, quarterly
distributions totaling $709,930 and $7,171 were distributed to
the Limited Partners and the General Partner, respectively, for a
total of $717,101 in cash distributions. In addition, a special
distribution of approximately $4,999,986 was made in March 1996
to Limited Partners after the payoff of the mortgage loan
receivable on Plaza on the Lake. The return of capital portion
of the total 1996 distributions was $5,357,405 and $3,610 for the
Limited Partners and General Partner, respectively.
During the year ended December 31, 1995, quarterly
distributions totaling $873,760 and $8,826 were distributed to
the Limited Partners and the General Partner, respectively, for a
total of $882,586 in cash distributions. The return of capital
portion of 1995 distributions was $232,975 and $2,354 for the
Limited Partners and General Partner, respectively.
Future cash distributions to Limited Partners are
currently anticipated.
<PAGE>
<TABLE>
Item 6. Selected Financial Data
USAA REAL ESTATE INCOME INVESTMENTS I LIMITED PARTNERSHIP
YEARS ENDED DECEMBER 31, 1996, 1995, 1994, 1993 AND 1992
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Rental Income $ 1,397,128 1,199,715 849,543 1,605,142 2,037,965
Interest Income 141,182 639,040 655,982 653,526 644,419
Net Income (Loss) 356,072 647,257 436,049 (5,375,196) 1,561,858
Net Income (Loss) per
Limited Partnership
Unit (1) 6.46 11.73 7.90 (97.44) 28.31
Taxable Income (Loss) (46,201) (1,224) (116,064) 747,432 1,602,750
Taxable Income (Loss) per
Limited Partnership
Unit (1) (0.84) (0.02) (2.10) 13.55 29.05
Cash Distributions 5,717,087 882,586 882,585 1,103,233 1,820,333
Cash Distributions per
Limited Partnership
Unit (2) 104.56 16.00 16.00 20.00 33.00
Total Assets at Period End 11,396,279 16,701,347 16,968,881 17,380,331 24,082,797
(1) Based on limited partnership units issued at period end and net income
(loss) / taxable income (loss) allocated to Limited Partners.
(2) Based on limited partnership units issued at each quarter end and cash
distributions allocated to Limited Partners with the exception of the
special distribution of $91.56 per limited partnership unit that was
paid in March 1996 which was based on the limited partnership units
outstanding at January 31, 1996, the date of the mortgage loan payoff.
The above selected financial data should be read in conjunction with the
financial statements and related notes appearing elsewhere in this report.
</TABLE>
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Partnership had cash of $46,204 and
temporary investments of $926,892. These funds were held in the
working capital reserve for the payment of obligations of the
Partnership. Accounts receivable consisted of amounts due from
tenants at Volusia Point and the Systech building. Deferred
charges and other assets consisted of deferred rent that resulted
from recognition of income as required by generally accepted
accounting principles and lease commissions. Accounts payable
included amounts due to affiliates for management fees and
reimbursable expenses and amounts due to third parties for
expenses incurred for operations. Accrued expenses and other
liabilities consisted of security deposits and prepaid revenue
from tenants.
On January 31, 1996, the maturity date of the Plaza on the Lake
mortgage loan receivable, the Partnership received $5,440,000
from USAA Real Estate Company, the borrower, in full payment of
the loan. Approximately $5,000,000 of the proceeds from the loan
payoff, or $91.56 per Limited Partnership unit, was distributed
to the Limited Partners during the quarter ended March 31, 1996.
The balance of the proceeds of approximately $440,000 was held by
the Partnership for future operating requirements.
In addition to the distribution of funds from the mortgage loan
payoff, the Partnership distributed $709,930 to Limited Partners
and $7,171 to the General Partner during 1996 for a total of
$717,101, or $13.00 per Limited Partnership unit. Quarterly
distributions were decreased from $4.00 per unit to $3.00 per
unit beginning in the first quarter of 1996 due to the reduced
cash flow that occurred subsequent to the repayment of the
mortgage loan receivable and the resulting loss of interest
income to the Partnership. During the ten-year term of the
mortgage loan receivable, the Partnership recorded interest
income on the mortgage loan receivable, including participation
income, averaging approximately $590,000 per year.
Quarterly distributions were increased in the fourth quarter of
1996 from $3.00 to $4.00 per Limited Partnership unit.
Management evaluates reserves and the availability of funds for
distribution to the Partners on a continuing basis based on
anticipated leasing activity and cash flows available from the
Partnership investments.
Volusia Point Shopping Center, located in Lakeland, Florida will
be actively marketed for sale in 1997; however, no formal plan
exists for the ultimate disposition of the property. Management
believes that the property is well positioned to sell due to its
occupancy level and the stability of the surrounding Daytona
Beach market. The Sorrento Valley market where the Systech
building is located is also stable. Management is currently
analyzing the feasibility of also selling the Systech building in
the near future.
<PAGE>
At the Systech building, a 42-month lease was executed in July
1996 between the Partnership and a new tenant after a change in
Systech Computer Corporation's business requirements. The new
tenant is Integrated Systems, Inc. ("ISI"). In August, ISI
occupied 24,191 square feet of the Systech building. Prior to
the scheduled date of December 1996, ISI moved into an additional
4,712 square feet. The lease provides for a subsequent addition
of 13,201 square feet in April 1998, following vacancy of that
space by Systech Computer Corporation. The lease also provides
ISI with the right of first refusal for any additional space
which may become available on the fourth floor of the building as
a result of the early termination of the lease with Systech
Computer Corporation. The rental rate for ISI began at $10.13
per square foot per year and will increase to $12.57 per square
foot per year over the term of the lease. In addition to rent,
ISI will pay their pro rata share of property operating expenses
which exceed those of 1995, the base year.
The lease between the Partnership and Systech Computer
Corporation was amended in July 1996 to allow for the gradual
decrease of leased square footage and early termination. In
August 1996, Systech Computer Corporation moved out of the first
two floors of the four story office building to accommodate
occupancy by ISI. Systech Computer Corporation's lease
obligation was further reduced in December 1996 by the 4,712
square feet ISI expanded into; a further reduction is scheduled
to occur in March 1998, and will again be followed by the
increases in space occupied by ISI.
The rental rate for ISI is lower than the rate paid by Systech
Computer Corporation. To compensate the Partnership for this
difference and the potential vacancy of approximately 8,300
square feet on the fourth floor of the Systech building, the
tenant forfeited their security deposit of approximately $36,400,
paid a $10,000 buy-out fee and was responsible for payment of
brokerage fees and legal fees associated with this lease
restructuring process. In addition to payment of these fees,
Systech's current rental rate was increased from $11.04 to $11.53
per square foot per year, and will increase to $12.98 over the
remaining term of the lease.
Approximately $75,000 of the Partnership's commitment for the
final phase of tenant improvements at the Systech building was
expended as of December 31, 1996. The original $84,400 allowance
for the improvements was increased to approximately $97,000 to
allow for HVAC improvements. The balance of approximately
$22,000 was paid in January 1997 and was funded from the working
capital reserve of the Partnership.
Future liquidity is expected to result from cash generated from
operations of the properties, interest on temporary investments
and ultimately through the sale of the properties.
<PAGE>
Results of Operations
For each of the years in the three-year period ended December 31,
1996, income was generated from rental income from the income
producing properties, interest income and participation income
earned on the mortgage loan and interest income earned on the
funds invested in temporary investments. As there was no lease
in force at the Systech building from August 1993 through
February 1995, no income was generated by that property during
that period. Subsequent to January 31, 1996, the date of the
payoff of the mortgage loan receivable, no interest was earned on
that investment. Expenses incurred during the same periods were
associated with operations of the Partnership's properties and
various other costs required for administration of the
Partnership.
The decrease in rental properties from December 31, 1995 to
December 31, 1996 was attributable to depreciation on the
Partnership properties, and was offset by the tenant improvements
at the Systech building. Cash and cash equivalents increased
during the same period primarily due to the reserve held by the
Partnership from the proceeds of the mortgage loan payoff. The
increase in accounts receivable from December 31, 1995 to
December 31, 1996 reflects outstanding reimbursement of property
operating expenses from tenants at the Systech building.
Amortization of lease commissions for the Systech building caused
the decrease in deferred charges. The increase in accounts
payable reflected timing of payment of tenant improvements at the
Systech building. The receipt of prepaid revenue from a tenant
at the Systech building accounted for the increase in accrued
expenses from December 31, 1995 to December 31, 1996.
The increases in rental income from the twelve-month period ended
December 31, 1994 to December 31, 1995 and from the twelve-month
period ended December 31, 1995 to December 31, 1996 reflected the
March 1, 1995 commencement of a single-tenant lease at the
Systech building. The increase in rental income from 1995 to
1996 was also impacted by Systech Computer Corporation's
forfeiture of their $36,456 security deposit, payment of a
$10,000 fee related to the lease restructuring and receipt of
reimbursable property operating expenses subsequent to the 1995
base year of the leases at the Systech building.
Occupancy at Volusia Point remained fairly consistent at 92%, 88%
and 93% at December 31, 1996, 1995 and 1994, respectively. The
increase in rental income at Volusia Point from the year ended
December 31, 1995 to December 31, 1996 that resulted from the
increase in occupancy was offset by a decrease in percentage rent
during the same period.
The decrease in interest income from the mortgage loan receivable
for the year ended December 31, 1996 from the two prior years
reflected the January 31, 1996 payoff of the receivable.
Interest income on cash held by the Partnership fluctuated during
the three-year period ended December 31, 1996 as a result of the
changes in cash and cash equivalents held by the Partnership.
<PAGE>
The increases in direct expenses during the three-year period
ended December 31, 1996 was consistent with the increase in
depreciation on the tenant and building improvements at the
Systech building. This increase in depreciation expense from
1995 to 1996 was partially offset by increases in reimbursements
of property operating expenses from tenants at the Systech
building during the same time period.
General and administrative expenses remained stable overall
during each of the years in the three-year period ended December
31, 1996. Printing charges decreased in each of the years in the
three-year period ended December 31, 1996. The decrease from
1994 to 1995 reflected savings realized on annual reports to
investors. Legal charges were higher for the year ended December
31, 1994 than for the years ended December 31, 1995 and 1996 due
to pending litigation at both of the Partnership properties
during 1994. The mortgage loan servicing fee decreased as a
result of the payoff of the mortgage loan receivable in January
1996. These decreases in printing and legal charges and the
mortgage loan servicing fee were offset by increases in
amortization expense on lease commissions at the Systech
building.
The Partnership's management fee is based on cash flow from
operations of the Partnership adjusted for cash reserves and
fluctuated accordingly. The decrease in the management fee for
the year ended December 31, 1996 from the prior year reflected
the decrease in revenue resulting from the maturity of the
mortgage loan receivable. The increase in the management fee for
the year ended December 31, 1995 from the prior year resulted
from the increase in rental revenue at the Systech building.
INFLATION
An increase in inflation could affect the Partnership's
investments through increases in the costs of operating and
maintaining the properties acquired and in various administrative
costs of Partnership operation. The adverse effect inflation may
have on operating expenses would be offset to some extent by
increases in rental rates charged tenants at the Partnership's
properties. If high occupancy levels are maintained at the
properties, increases in rental income should offset increasing
property operating expenses with a minimal effect on operating
income.
<PAGE>
<TABLE>
Item 8. Financial Statements and Supplementary Data
USAA REAL ESTATE INCOME INVESTMENTS I LIMITED PARTNERSHIP
BALANCE SHEETS
December 31, 1996 and 1995
<CAPTION>
1996 1995
<S> <C> <C>
ASSETS
Rental properties, net (note 3) $ 9,964,683 10,438,578
Mortgage loan receivable from affiliate (note 4) -- 5,440,000
Temporary investments at cost which approximates
market value -
Money market fund 926,892 343,834
Cash 46,204 23,003
Cash and cash equivalents 973,096 366,837
Accounts receivable 72,175 45,201
Deferred charges, at amortized cost, and other
assets 386,325 410,731
$ 11,396,279 16,701,347
LIABILITIES AND PARTNERS' EQUITY
Accounts payable, including amounts due to
affiliates of $27,907 and $45,090 (note 6) $ 83,582 55,379
Accrued expenses 35,634 8,510
Security deposits 66,616 65,996
Total liabilities 185,832 129,885
Partners' equity:
General Partner:
Capital contribution 1,000 1,000
Cumulative net income 89,818 86,257
Cumulative distributions (184,391) (177,220)
(93,573) (89,963)
Limited Partners (54,610 units):
Capital contributions, net of offering costs 25,666,700 25,666,700
Cumulative net income 8,892,025 8,539,514
Cumulative distributions (23,254,705) (17,544,789)
11,304,020 16,661,425
Total Partners' equity 11,210,447 16,571,462
$ 11,396,279 16,701,347
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
USAA REAL ESTATE INCOME INVESTMENTS I LIMITED PARTNERSHIP
STATEMENTS OF INCOME
Years Ended December 31, 1996, 1995 and 1994
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
INCOME
Rental income $ 1,397,128 1,199,715 849,543
Interest from mortgage loan (notes 4 and 6) 52,124 612,757 605,535
Less direct expenses, including depreciation
of $572,255, $543,494 and $431,171 (863,601) (861,541) (766,591)
Net operating income 585,651 950,931 688,487
Interest income (note 6) 89,058 26,283 50,447
Total income 674,709 977,214 738,934
EXPENSES
General and administrative (note 6) 250,744 252,165 253,560
Management fee (note 6) 67,893 77,792 49,325
Total expenses 318,637 329,957 302,885
Net income $ 356,072 647,257 436,049
Net income per limited partnership unit $ 6.46 11.73 7.90
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
USAA REAL ESTATE INCOME INVESTMENTS I LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' EQUITY
Years Ended December 31, 1996, 1995 and 1994
<CAPTION>
General Limited
Partner Partners Total
<S> <C> <C> <C>
Balances at December 31, 1993 $ (83,144) 17,336,471 17,253,327
Net income 4,360 431,689 436,049
Cash distributions (8,825) (873,760) (882,585)
Balances at December 31, 1994 (87,609) 16,894,400 16,806,791
Net income 6,472 640,785 647,257
Cash distributions (8,826) (873,760) (882,586)
Balances at December 31, 1995 (89,963) 16,661,425 16,571,462
Net income 3,561 352,511 356,072
Cash distributions (7,171) (5,709,916) (5,717,087)
Balances at December 31, 1996 $ (93,573) 11,304,020 11,210,447
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
USAA REAL ESTATE INCOME INVESTMENTS LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996, 1995 and 1994
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 356,072 647,257 436,049
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 572,255 543,494 431,171
Amortization 44,937 34,290 9,467
Loss on early retirement of assets -- -- 2,465
Decrease (increase) in accounts receivable (26,974) (9,297) 65,380
Increase in deferred charges and other assets (20,531) (168,240) (194,539)
Increase (decrease) in accounts payable,
accrued expenses and other liabilities 55,947 (32,205) 35,086
Cash provided by operating activities 981,706 1,015,299 785,079
Cash flows from investing activities:
Additions to rental properties (98,360) (561,552) (684,626)
Proceeds from mortgage loan receivable 5,440,000 -- --
Cash provided by (used in) investing activities 5,341,640 (561,552) (684,626)
Cash flows used in financing activities -
Payment of distributions (5,717,087) (882,586) (882,585)
Net increase (decrease) in cash and cash equivalents 606,259 (428,839) (782,132)
Cash and cash equivalents at beginning of year 366,837 795,676 1,577,808
Cash and cash equivalents at end of year $ 973,096 366,837 795,676
See accompanying notes to financial statements.
</TABLE>
<PAGE>
USAA REAL ESTATE INCOME INVESTMENTS I
LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
1. Organization, Summary of Significant Accounting Policies and
Other
USAA Real Estate Income Investments I Limited Partnership is
engaged solely in the business of real estate investment;
therefore, presentation of information about industry
segments is not applicable. The General Partner, USAA
Investors I, Inc., is a wholly-owned subsidiary of USAA Real
Estate Company, which is a wholly-owned subsidiary of USAA
Capital Corporation, which is a wholly-owned subsidiary of
United Services Automobile Association ("USAA").
At December 31, 1996, the Partnership owned a shopping
center located in Daytona Beach, Florida and an office
building located in San Diego, California. The
Partnership's revenue is subject to changes in the economic
environments of these areas.
Rental properties are valued at cost. The carrying amount
of a property is not changed for temporary fluctuations in
value unless the carrying value is believed to be
permanently impaired. In 1995, the Partnership adopted the
provisions of Financial Accounting Standards Board Statement
No. 121, "Accounting for Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of," ("Statement 121").
Statement 121 provides guidance for determining impairment
of long-lived assets utilizing undiscounted future cash
flows. The assessment for and measurement of impairment is
based upon the undiscounted future cash flows and fair
value, respectively, of the individual real estate
properties. Based on the provisions of Statement 121, the
Partnership's long-lived assets, real estate and
improvements are not considered impaired. The adoption of
Statement 121 had no financial statement impact.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
For purposes of the Statements of Cash Flows, all highly
liquid marketable securities that have a maturity at
purchase of three months or less and money market mutual
funds are considered to be cash equivalents.
<PAGE>
Depreciation is provided over the estimated useful lives of
properties using the straight-line method. The estimated
lives of the buildings and improvements are 30 years (19 -
39 years for Federal income tax purposes).
Rental income is recognized under the operating method,
whereby aggregate rentals are reported as income on the
straight-line basis over the life of the lease. Rental
income recognized was $15,873, $65,461 and $68,669 more than
the amount due per the lease agreements for the years ended
December 31, 1996, 1995 and 1994, respectively.
No provision or credit for income taxes has been made as the
liability for such taxes is that of the Partners rather than
the Partnership. The Partnership files its tax return on an
accrual basis.
For financial reporting purposes, net income (loss) is
allocated 1% to the General Partner and 99% to the Limited
Partners. Net income (loss) per limited partnership unit is
based upon the limited partnership units outstanding at the
end of the period and the net income (loss) allocated to the
Limited Partners.
Cash distributions per limited partnership unit were $104.56
during 1996 and $16.00 during 1995 and 1994. The
distributions of $13.00, $16.00 and $16.00 per limited
partnership unit paid during the years ended December 31,
1996, 1995 and 1994, respectively, were based on the limited
partnership units outstanding at each quarter end and the
cash distributions allocated to Limited Partners. The
additional distribution of $91.56 per limited partnership
unit that was paid in March 1996 was based on the limited
partnership units outstanding at January 31, 1996, the date
of the mortgage loan payoff. See note 4.
2. Partnership Agreement
Pursuant to the terms of the Partnership Agreement, all net
cash flow shall be distributed in the ratio of 1% to the
General Partner and 99% to the Limited Partners within 60
days after the close of each fiscal quarter. Generally, net
taxable income or losses not arising from the sale or
refinancing of properties of the Partnership are allocated
99% to the Limited Partners and 1% to the General Partner.
Residual proceeds are allocated first to the Limited
Partners until the Limited Partners shall receive an amount
equal to their adjusted capital contributions plus an amount
which when added to all prior distributions to Limited
Partners equals a 9% per annum cumulative return on their
adjusted capital contributions; second, to all Partners, in
an amount equal to their respective positive capital account
balances to the extent such balances exceed the amounts
provided for in the preceding clauses; third, in the case of
any sale of a property, a real estate brokerage commission
to the Advisor as provided in the Partnership Agreement; and
fourth, the balance, 90% to the Limited Partners and 10% to
the General Partner.
<PAGE>
Generally, all items of income, gain, loss, deduction and
credit from operations will be allocated 99% to the Limited
Partners and 1% to the General Partner. Net taxable gain or
loss from the sale or other disposition of a property shall
be allocated as described in the Partnership Agreement.
3. Rental Properties
Rental properties at December 31 consisted of the following:
1996 1995
Buildings and improvements $13,710,277 13,611,917
Land 2,282,163 2,282,163
15,992,440 15,894,080
Less accumulated
depreciation (6,027,757) (5,455,502)
$ 9,964,683 10,438,578
4. Mortgage Loan Receivable from Affiliate
On January 31, 1986, the Partnership funded a first mortgage
loan in the amount of $5,440,000 with interest at 10% due
January 31, 1996 to Plaza on the Lake Investors, Ltd. USAA
Real Estate Company, the parent of the General Partner, held
a second mortgage note on Plaza on the Lake. On February 9,
1987, as allowed in the loan documents, upon default of the
borrower, USAA Real Estate Company accepted a deed on the
property effective January 1, 1987, and replaced Plaza on the
Lake Investors, Ltd. as the borrower on the first lien held
by the Partnership. All terms and conditions contained in
the original documents remained as originally written.
On January 31, 1996, in accordance with the terms of the
mortgage loan agreement between USAA Real Estate Income
Investments I Limited Partnership and USAA Real Estate
Company, the principal balance of the $5,440,000 mortgage
loan receivable was received by the Partnership and the
underlying note paid in full. Approximately $5,000,000 of
the proceeds from the loan payoff, or $91.56 per Limited
Partnership unit, was distributed to the Limited Partners
during the first quarter of 1996.
In addition to the interest income, the Partnership received
3.2% of the gross revenues of the property through year six
and 3.84% in years seven through ten. The Partnership
recorded interest income on the mortgage loan receivable of
$52,124, $612,757 and $605,535, which includes $5,921,
$68,757 and $61,535 in participation income for the years
ended December 31, 1996, 1995 and 1994, respectively.
<PAGE>
The following is summarized financial information for the
years ended December 31 for Plaza on the Lake, the underlying
property of the mortgage loan receivable.
1995 1994
Rental income $1,594,840 1,520,306
Net loss (77,393) (274,968)
Net rental property at
period end 7,659,893 7,702,603
Total assets at period
end 8,169,336 8,174,974
Mortgage payable at
period end 5,440,000 5,440,000
Total liabilities at
period end 5,782,150 5,761,506
Financial information for Plaza on the Lake for fiscal year
1996 is not included as the mortgage loan receivable was paid
in full in January 1996.
5. Minimum Future Rentals
Operating leases with tenants have remaining terms from one
to twelve years. Minimum future rentals are cash payments to
be received under non-cancelable leases over the lease terms
and do not necessarily represent rental income under
generally accepted accounting principles. Rental income
reported in the Statements of Income is recognized under the
operating method, whereby aggregate rentals are reported as
income on the straight-line basis over the life of the lease.
Approximate minimum future rentals are as follows:
1997 $ 1,319,000
1998 1,235,000
1999 1,096,000
2000 384,000
2001 222,000
Thereafter 1,073,000
$ 5,329,000
6. Transactions With Affiliates
USAA Real Estate Company (as the Advisor) may receive real
estate brokerage commissions of up to 1% of the aggregate
selling prices of properties sold, management fees of up to
4% of gross revenues from operations or 9% of the
Partnership's adjusted cash flow, and an annual mortgage
servicing fee of up to 1/4 of 1% of amounts funded by the
Partnership in mortgage loans which are serviced by the
Advisor.
Through January 1995, a portion of the Partnership's working
capital reserve and other available funds were invested in
USAA Mutual Fund, Inc., an affiliate of the General Partner,
and earned interest thereon at market rates.
<PAGE>
Quorum Real Estate Services Corporation (also known as USAA
Realty Company), an affiliate of the General Partner,
receives fees of up to 6% of the cash receipts of Partnership
properties for managing and providing leasing services for
the properties.
A summary of transactions with affiliates follows:
<TABLE>
<CAPTION>
MORTGAGE
REIMBURSEMENT INTEREST MANAGEMENT LEASE SERVICING
OF EXPENSES (1) INCOME FEES COMMISSIONS FEES TOTAL
<S> <C> <C> <C> <C> <C> <C>
USAA Mutual Fund, Inc.:
1996 $ -- -- -- -- -- --
1995 -- (18) -- -- -- (18)
1994 -- (363) -- -- -- (363)
USAA Real Estate Company:
1996 117,027 (52,124) 67,893 -- 1,115 133,911
1995 112,413 (612,757) 77,791 -- 13,600 (408,953)
1994 136,978 (605,535) 49,325 -- 12,427 (406,805)
Quorum Real Estate
Services Corporation:
1996 60,609 -- 48,992 17,282 -- 126,883
1995 19,550 -- 40,089 16,273 -- 75,912
1994 15,832 -- 29,205 15,745 -- 60,782
(1) Reimbursement of expenses represents amounts paid or accrued
as reimbursement of expenses incurred on behalf of the
Partnership at actual cost and does not include any mark-up or
items normally considered as overhead.
</TABLE>
7. Income Taxes
A reconciliation of financial statement net income to
taxable loss follows:
1996 1995 1994
Net income-financial
statement basis $ 356,072 647,257 436,049
Adjusted by:
Increase in deferred rent (15,600) (65,461) (66,001)
Repairs and maintenance
capitalized -- -- 33,728
Excess tax depreciation over
financial statement
depreciation (412,660) (441,114) (531,939)
Prepaid rent 27,933 (10,420) 8,407
Other reconciling items (1,946) 1,638 3,692
Tax loss on disposal
of asset -- (133,124) --
Taxable loss $ (46,201) (1,224) (116,064)
<PAGE>
8. Major Customer Information
During the years ended December 31, 1996 and 1995, the
Partnership recorded rental income of approximately $493,000
and $414,000, respectively, from a major tenant in the
computer industry. This income represented approximately 35%
and 37% of total rental income for 1996 and 1995,
respectively. There is no applicable major customer
information for the year ended December 31, 1994.
9. Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents, accounts
payable and accrued expenses and other liabilities
approximates fair value because of the short-term nature of
these instruments.
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE PARTNERS
USAA REAL ESTATE INCOME INVESTMENTS I LIMITED PARTNERSHIP:
We have audited the accompanying balance sheets of USAA Real Estate
Income Investments I Limited Partnership as of December 31, 1996
and 1995, and the related statements of income, partners' equity,
and cash flows for each of the years in the three-year period ended
December 31, 1996. These financial statements are the
responsibility of the Partnership's management. Our responsibility
is to express an opinion on these financial statements based on our
audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of USAA
Real Estate Income Investments I Limited Partnership as of December
31, 1996 and 1995, and the results of its operations and its cash
flows for each of the years in the three-year period ended December
31, 1996, in conformity with generally accepted accounting
principles.
/s/KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
San Antonio, Texas
January 29, 1997
<PAGE>
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
Not Applicable.
<PAGE>
Part III
Item 10. Directors and Executive Officers of the Registrant
The General Partner of the Partnership is USAA Investors
I, Inc., a Texas corporation.
As of January 1, 1997, the directors and executive
officers of the General Partner were as follows:
POSITION WITH
NAME GENERAL PARTNER
Edward B. Kelley Chairman, President,
Chief Executive Officer and
Director
T. Patrick Duncan Vice Chairman
Senior Vice President -
Real Estate Operations and Director
Randal R. Seewald Vice President, Secretary,
Legal Counsel and Director
Martha J. Barrow Vice President -
Administration and
Finance/Treasurer
S. Wayne Peacock Vice President -
Portfolio Management
David A. Rosales Assistant Vice President -
Controller
Susan T. Wallace Assistant Vice President -
Acquisitions and Dispositions
David M. Holmes Assistant Vice President -
Capital Investments
Stephen S. King Assistant Vice President -
Western Region
All of the foregoing directors and executive officers
have been elected to serve one-year terms until the annual
meeting of the General Partner.
There are no arrangements or understandings between or
among any of said directors or executive officers to be elected
or selected as such, nor are there any family relationships among
any of the foregoing directors and executive officers. The
foregoing directors and executive officers are also officers
and/or directors of various affiliated companies of the General
Partner.
The age and business experience of each of the directors
and executive officers of the General Partner is as follows:
<PAGE>
Edward B. Kelley, 56, joined USAA in April 1989 and is
Vice Chairman, President, Chief Executive Officer and Director of
USAA Real Estate Company and Chairman, President, Chief Executive
Officer and Director of USAA Real Estate Development Company,
USAA Real Estate Management Company, Quorum Real Estate Services
Corporation, USAA Properties Fund, Inc., USAA Investors I, Inc.,
USAA Investors II, Inc., USAA Properties II, Inc., USAA
Properties III, Inc., USAA Properties IV, Inc., La Paz, Inc.,
USAA Real Estate Equities, Inc., Alhambra Gables One, Inc., L. A.
Wilshire One, Inc., USAA Real Estate - Midwest, Inc., and Las
Colinas Management Company. He also serves as Chief Executive
Officer, President and Director of Fiesta Texas Showpark, Inc.,
La Cantera Development Company and La Cantera Hospitality, Inc.
Mr. Kelley is also Chairman of the Board, Chief Executive Officer
and Director of USAA Equity Advisors, Inc. Mr. Kelley serves as
President and Director of USAA Health Services, Inc. All of the
previously named companies are affiliates of the General Partner.
He graduated from St. Mary's University of San Antonio, Texas
with a Bachelor of Business Administration Degree in Finance in
1964 and was awarded a Master of Business Administration Degree,
in Finance, by Southern Methodist University, Dallas, Texas in
1967. Mr. Kelley was employed by Barshop Enterprises, Inc., of
San Antonio, Texas from July 1980 until April 1989 where he was
President and an Advisory Director of Barshop Enterprises, Inc.
and its corporate subsidiaries. The Barshop group of companies
is engaged in the development, management and ownership of
commercial real estate properties in San Antonio and other Texas
cities. He is past Chairman of the Board and a member of the
Executive Committee of the Greater San Antonio Chamber of
Commerce; past member of the Board of Directors, Executive
Committee, and past President of the San Antonio chapter of the
National Association of Industrial and Office Parks; past member
of the Board of Directors of the San Antonio Economic Development
Foundation, and past Chairman of the Board of Trustees of St.
Mary's University and its Executive Committee. Mr. Kelley is a
member of the Board of Directors and Executive Committee, Vice
President of the Board of Directors, and Chairman of the 1994
Friends of Scouting Bexar County Campaign, as well as the
President of the Alamo Area Council of Boy Scouts of America;
member of the Board of Trustees of St. Mary's University; member
of the Board of Trustees of the Baptist Children's Home of San
Antonio; member of the Board of Directors of the San Antonio
Economic Development Foundation; member of Board of Trustees for
the United Way of San Antonio and Bexar County; and a member of
the Board of Directors of the American Industrial Properties REIT
(AIP).
T. Patrick Duncan, 47, is Senior Vice President - Real
Estate Operations and Director of USAA Real Estate Company, USAA
Real Estate Equities, Inc. and USAA Health Services, Inc. He
also serves as Senior Vice President, Director and Vice Chairman
of USAA Real Estate Development Company, USAA Real Estate
Management Company, Quorum Real Estate Services Corporation, USAA
Properties Fund, Inc., USAA Investors I, Inc., USAA Investors II,
Inc., USAA Properties II, Inc., USAA Properties III, Inc., USAA
Properties IV, Inc., La Paz, Inc., USAA Equity Advisors, Inc.,
Alhambra Gables One, Inc., L. A. Wilshire One, Inc., USAA Real
<PAGE>
Estate-Midwest, Inc., and Las Colinas Management Company. All of
the previously named companies are affiliates of the General
Partner. He is a 1972 graduate of the University of Arizona and
was awarded the Bachelor of Science Degree with a dual major in
Accounting and Finance. Prior to joining USAA in 1986, Mr.
Duncan was an audit manager with Deloitte Touche and Company and
Comptroller of Trammell Crow Company in Dallas, Texas. Mr.
Duncan is a Certified Public Accountant and holds a Texas Real
Estate Brokers License. He holds memberships in the Texas and
Arizona State Boards of Accounting, the Texas and Arizona State
Societies of Certified Public Accountants, the International
Council of Shopping Centers, the Urban Land Institute, The
National Association of Real Estate Investment Managers and the
Pension Real Estate Association. Mr. Duncan serves on the Board
of Trustees and is Chairman of the Finance Committee of the
Daughters of Charity; and Board member of the North San Antonio
Chamber of Commerce, as well as Chairman of its Governmental
Affairs Council. Mr. Duncan is a Board member of Meridian
Industrial Trust and American Industrial Trust, two public REITs
traded on the New York Stock Exchange. Mr. Duncan serves on
various committees of these two entities.
Randal R. Seewald, 43, began his career with USAA in
1976, and is currently Vice President, Director, Secretary and
Legal Counsel of USAA Real Estate Development Company, USAA Real
Estate Management Company, USAA Properties Fund, Inc., USAA
Properties II, Inc., USAA Properties III, Inc., USAA Properties
IV, Inc., USAA Investors I, Inc., USAA Investors II, Inc.,
Alhambra Gables One, Inc., L. A. Wilshire One, Inc., Quorum Real
Estate Services Corporation, USAA Real Estate-Midwest, Inc., La
Paz, Inc., USAA Equity Advisors, Inc., USAA Health Services,
Inc., and Las Colinas Management Company. He is also Vice
President, Secretary and Legal Counsel of USAA Real Estate
Company and USAA Real Estate Equities, Inc. Mr. Seewald serves
as Vice President, Legal Counsel, Treasurer and Secretary of
Fiesta Texas Showpark, Inc., La Cantera Development Company and
La Cantera Hospitality, Inc. All of the previously named
companies are affiliates of the General Partner. Mr. Seewald
holds a Bachelor of Business Administration from Texas A&M
University and a J.D. from St. Mary's University School of Law.
He is a member of the State Bar of Texas, the American Bar
Association, the San Antonio Bar Association, and the American
Corporate Counsel Association.
Martha J. Barrow, 49, is Vice President, Administration
and Finance, and Treasurer of USAA Real Estate Company, Alhambra
Gables One, Inc., L.A. Wilshire One, Inc., La Paz, Inc., Las
Colinas Management Company, Quorum Real Estate Services
Corporation, USAA Health Services, Inc., USAA Investors I, Inc.,
USAA Investors II, Inc., USAA Properties Fund, Inc., USAA
Properties II, Inc., USAA Properties III, Inc., USAA Properties
IV, Inc., USAA Real Estate-Midwest, Inc., USAA Real Estate
Development Company, USAA Real Estate Equities, Inc., and USAA
Real Estate Management Company. Ms. Barrow serves as President
of USAA Equity Advisors, Inc. All of the previously named
companies are affiliates of the General Partner. Ms. Barrow
joined USAA in June 1983. Prior to her joining USAA, she served
<PAGE>
as a Tax Accountant of La Quinta Motor Inns, Inc. and as Senior
Accountant with NL Industries. She is a Certified Public
Accountant in the state of Texas and is a member of the Texas
Society of Certified Public Accountants and the American
Institute of Certified Public Accounts. She is a license holder
for Securities Registration Series 7, Series 63, and Series 24.
Ms. Barrow holds a Bachelor of Business Administration in
Accounting from Pan American University and an Master of Business
Administration from St. Mary's University. She is a member of
the National Association of Real Estate Investment Managers
(NAREIM), the National Council of Real Estate Investment
Fiduciaries (NCREIF), and the American Real Estate Society
(ARES).
S. Wayne Peacock, 38, is Vice President, Portfolio
Management of USAA Real Estate Company, USAA Properties Fund,
Inc., USAA Properties II, Inc., USAA Properties III, Inc., USAA
Properties IV, Inc., USAA Investors I, Inc., USAA Investors II,
Inc., Quorum Real Estate Services Corporation, USAA Real Estate
Equities, Inc., Alhambra Gables One, Inc., L. A. Wilshire One,
Inc., USAA Equity Advisors, Inc., USAA Real Estate Development
Company, and USAA Real Estate-Midwest, Inc. He is also a
Director of Quorum Real Estate Services Corporation. All of the
previously named companies are affiliates of the General Partner.
Mr. Peacock joined USAA in January 1992. Mr. Peacock has
previous real estate experience with Coldwell Banker and Merrill
Lynch. He graduated in 1981 from Tulane University, New Orleans,
Louisiana, where he received a Bachelor of Arts degree in
Economics. Mr. Peacock is a Certified Commercial Investment
Manager (CCIM). He holds memberships in the San Antonio Board of
Realtors and CCIM.
David A. Rosales, 40, is Assistant Vice President -
Controller for USAA Real Estate Company, Alhambra Gables One,
Inc., L.A. Wilshire One, Inc., La Paz, Inc., Las Colinas
Management Company, USAA Equity Advisors, Inc., USAA Investors I,
Inc., USAA Investors II, Inc., USAA Properties Fund, Inc., USAA
Properties II, Inc., USAA Properties III, Inc., USAA Properties
IV, Inc., USAA Real Estate - Midwest, Inc., USAA Real Estate
Development Company, USAA Real Estate Equities, Inc., and USAA
Real Estate Management Company. He is also Assistant Vice
President, Controller of Quorum Real Estate Services Corporation.
All of the previously named companies are affiliates of the
General Partner. Mr. Rosales joined USAA in September 1983. He
holds a Bachelor of Business Administration from St. Mary's
University and an Master of Business Administration from Our Lady
of the Lake University. He is a Certified Public Accountant in
the state of Texas and holds memberships in the Texas Society of
CPAs, the San Antonio chapter of CPAs and the American Institute
of CPAs. Mr. Rosales also holds memberships in the National
Association of Real Estate Companies and the National Council of
Real Estate Investments Fiduciaries. He serves as Chairman of
the Board of Communities in Schools-San Antonio, Inc.
<PAGE>
Susan T. Wallace, 42, is Assistant Vice President, Real
Estate Investments for USAA Real Estate Company, USAA Properties
Fund, Inc., USAA Properties II, Inc., USAA Properties III, Inc.,
USAA Properties IV, Inc., USAA Investors I, Inc., USAA Investors
II, Inc., USAA Equity Advisors, Inc., Alhambra Gables One, Inc.,
L. A. Wilshire One, Inc., USAA Real Estate-Midwest, Inc., and
USAA Real Estate Equities, Inc. All of the previously named
companies are affiliates of the General Partner. Ms. Wallace
attended Bowling Green State University in Bowling Green, Ohio
and the University of Cincinnati in Cincinnati, Ohio. From
December 1983 until September 1988 she served as Director with
USAA Real Estate Company where she was responsible for the
identification of equity investments and acquisition of the
identified investments. Prior to joining USAA Real Estate
Company, she was Project Director and Division Manager for
Gibraltar Savings Association of Houston, Texas. Ms. Wallace
holds a Texas Real Estate License, is a graduate of the Realtors
Institute and is a member of the San Antonio and Texas Board of
Realtors, the National Association of Realtors, the National
Association of Real Estate Investment Managers and the
International Association of Corporate Real Estate Executives.
Ms. Wallace serves on the Board of Governors for the Affordable
Housing Investors Council.
David M. Holmes, 36, is Assistant Vice President,
Capital Investments for USAA Real Estate Company, USAA Properties
Fund, Inc., USAA Properties II, Inc., USAA Properties III, Inc.,
USAA Properties IV, Inc., USAA Investors I, Inc., USAA Investors
II, Inc., USAA Equity Advisors, Inc., Alhambra Gables One, Inc.,
L.A. Wilshire One, Inc., and USAA Real Estate-Midwest, Inc. All
of the previously named companies are affiliates of the General
Partner. Mr. Holmes joined USAA in May 1985. His
responsibilities include new property acquisition and capital
market activities. Mr. Holmes currently oversees over 2 million
square feet of office and industrial development. He also acts
as the primary contact for real estate securitization
transactions and coordinates contact with banking relationships,
alliance partners and other third party development or financing
sources. Prior to joining USAA, Mr. Holmes was a tax consultant
for Touche Ross & Company in San Antonio. He is a 1982 graduate
of Trinity University, San Antonio, Texas, where he received a
Bachelor of Business Administration with a concentration in
Accounting and Finance and is a Certified Public Accountant. He
has served on the Board of Directors of Big Brothers and Sisters
of San Antonio and as a member of the Finance Committee of the
San Antonio Public Library.
Stephen S. King, 40, is Assistant Vice President -
Western Region of USAA Real Estate Company, L.A. Wilshire One,
Inc., La Paz, Inc., USAA Investors I, Inc., USAA Properties III,
Inc., and USAA Properties IV, Inc. All of the previously named
companies are affiliates of the General Partner. Mr. King joined
USAA in July 1993. Prior to joining USAA, Mr. King had fifteen
years of professional real estate development, construction and
management experience. He graduated in 1978 from Texas A&M
University, where he received a Bachelor of Arts in Economics.
<PAGE>
Mr. King is a licensed California Broker, a member of the
Institute of Real Estate Management (IREM), the Building Owners
and Managers Association (BOMA), the National Association of
Realtors, and the Lincoln Club of Orange County.
<PAGE>
Item 11. Executive Compensation
The directors and officers of the General Partner of the
Partnership receive no current or proposed remuneration from the
Partnership or the General Partner.
The General Partner is entitled to receive a share of
cash distributions, profits and losses and sales and refinancing
proceeds as described under the captions "Compensation and Fees
to the General Partner, Advisor and Affiliates" at pages 12-17
and "Taxable Income and Tax Losses and Cash Distributions" at
pages 44-46 of the Prospectus dated November 16, 1984, filed
pursuant to Rule 424(b). Copies of these pages are attached
hereto as Exhibit 99.b, and are incorporated herein by this
reference. For the year ended December 31, 1996, the General
Partner received cash distributions of $7,171.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners
Name and Amount and
Address of Nature of
Title of Beneficial Beneficial Percent
Class Owner Ownership (1) of Class
Units of USAA Investors 6,035 Units of 11.05%
Limited I, Inc. (General Limited Partnership
Partnership Partner)(2) Interests
Interests 8000 Robert F.
McDermott Fwy.,
IH 10 West,
Suite 600
San Antonio, Texas
(1) The Amended and Restated Agreement of Limited Partnership
provides that the General Partner will vote such Units in
the same proportions as all other Limited Partners in the
event a vote of Limited Partners is taken.
(2) USAA Investors I, Inc. is a wholly-owned subsidiary of USAA
Real Estate Company, which is a wholly-owned subsidiary of
USAA Capital Corporation, which is a wholly-owned subsidiary
of USAA.
(b) Security Ownership of Management
None of the officers and directors of the General Partner of
the Partnership beneficially own equity securities of the
registrant or any of its parents.
<PAGE>
Item 13. Certain Relationships and Related Transactions
The Partnership is permitted to engage in various
transactions involving the General Partner or its affiliates.
Pursuant to an advisory agreement, the Advisor, an
affiliate of the General Partner, may receive, in the aggregate,
property acquisition fees of up to 4% of the gross offering
proceeds, loan origination and commitment fees of up to 4% of the
gross offering proceeds, real estate brokerage commissions of up
to 1% of the aggregate selling prices of properties sold,
management fees of up to 4% of gross revenues from operations or
9% of adjusted cash flow for the Partnership, and an annual
mortgage servicing fee of up to 1/4 of 1% of amounts funded by
the Partnership in mortgage loans, which are serviced by the
Advisor.
An affiliate of the General Partner, USAA Investment
Management Company, received selling commissions equal to 4% of
the gross proceeds from sales of limited partnership interests
and an expense allowance equal to 2% of the gross offering
proceeds for organizational and offering expenses. Through
January 1995, a portion of the Partnership's working capital
reserve and other available funds were invested in USAA Mutual
Fund, Inc.
An affiliate of the General Partner, Quorum Real Estate
Services Corporation (also known as USAA Realty Company),
provides property management and leasing services for the
properties and may receive fees of up to 6% of property cash
receipts for those services.
A summary of transactions with affiliates follows for the
three years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
MORTGAGE
REIMBURSEMENT INTEREST MANAGEMENT LEASE SERVICING
OF EXPENSES (1) INCOME FEES COMMISSIONS FEES TOTAL
<S> <C> <C> <C> <C> <C> <C>
USAA Mutual Fund, Inc.:
1996 $ -- -- -- -- -- --
1995 -- (18) -- -- -- (18)
1994 -- (363) -- -- -- (363)
USAA Real Estate Company:
1996 117,027 (52,124) 67,893 -- 1,115 133,911
1995 112,413 (612,757) 77,791 -- 13,600 (408,953)
1994 136,978 (605,535) 49,325 -- 12,427 (406,805)
Quorum Real Estate
Services Corporation:
1996 60,609 -- 48,992 17,282 -- 126,883
1995 19,550 -- 40,089 16,273 -- 75,912
1994 15,832 -- 29,205 15,745 -- 60,782
(1) Reimbursement of expenses represents amounts paid or accrued
as reimbursement of expenses incurred on behalf of the
Partnership at actual cost and does not include any mark-up
items normally considered as overhead.
</TABLE>
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
The following documents are filed as part of this Report.
(a) 1. Financial Statements
The following financial statements, notes to financial
statements and independent auditors' report are included in Part
II Item 8:
Balance Sheets as of December 31, 1996 and 1995
Statements of Income for the years ended
December 31, 1996, 1995 and 1994
Statements of Partners' Equity for the years ended
December 31, 1996, 1995 and 1994
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
Notes to Financial Statements
Independent Auditors' Report
2. Financial Statement Schedules
Real Estate and Accumulated Depreciation as of
December 31, 1996 (Schedule III)
Independent Auditors' Report
All other schedules have been omitted as the schedules
are not required under the related instructions, are not
applicable, or the information required thereby is set forth in
the financial statements or the notes thereto.
<PAGE>
3. Exhibits
Exhibit
No. Description
3.a Restated Certificate and Agreement of Limited
Partnership of Limited Partnership dated as of October
18, 1984, incorporated as Exhibit A to the Partnership's
Prospectus dated November 16, 1984, filed pursuant to
Rule 424(b),(Regis. No.2-92845) and incorporated herein
by this reference.
27 Financial Data Schedules
99.a "Glossary of Terms Used in Prospectus" pages 64-70
contained in the Prospectus dated November 16, 1984,
filed pursuant to Rule 424(b) (Regis. No. 2-92845).
99.b "Compensation and Fees to the General Partner, Advisor
and Affiliates" at pages 12-17 and "Taxable Income and
Tax Losses and Cash Distributions" at pages 44-46 of the
Prospectus dated November 16, 1984, filed pursuant to
Rule 424(b)(Regis. No. 2-92845.)
(b) Reports filed on Form 8-K
During the quarter ended December 31, 1996, there were
no Current Reports on Form 8-K filed.
(d) The following Plaza on the Lake Financial Statements and
Financial Statement Schedules are filed as part of this report:
FINANCIAL STATEMENTS:
Balance Sheets as of December 31, 1995 and 1994
Statements of Operations and Owner's Equity for
the years ended December 31, 1995, 1994 and 1993
Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993
Notes to Financial Statements
Independent Auditors' Report on Financial Statements
and Financial Statement Schedules
FINANCIAL STATEMENT SCHEDULES:
Valuation and Qualifying Accounts for the years ended
December 31, 1995, 1994 and 1993 (Schedule II)
Real Estate and Accumulated Depreciation as of
December 31, 1995 (Schedule III)
<PAGE>
Financial information for Plaza on the Lake for fiscal year
1996 is not included in this Form 10-K. The mortgage loan
secured by Plaza on the Lake was paid in full to USAA Real Estate
Income Investments I Limited Partnership in January 1996 and the
financial information on the property underlying the mortgage
loan is therefore no longer required.
All other schedules have been omitted as the schedules are
not required under the related instructions, are not applicable,
or the information required thereby is set forth in the financial
statements or the notes thereto.
<PAGE>
<TABLE>
SCHEDULE III USAA REAL ESTATE INCOME INVESTMENTS I LIMITED PARTNERSHIP
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
<CAPTION>
Cost Capitalized
Initial cost to Subsequent to
Partnership Acquisition
Buildings
Year of Date and Improve- Carrying
Construction Acquired Description Land Improvements ments Costs
<S> <C> <C> <C> <C> <C> <C>
1984 Sept 30, 1985 Volusia Point
Shopping Center
Daytona Beach, FL $ 1,800,000 6,890,958 720,254 --
1982 June 11, 1986 Systech Building
San Diego, CA 1,532,876 10,509,494 1,266,177 --
$ 3,332,876 17,400,452 1,986,431 --
<CAPTION>
Gross Amount at Which
Carried at Close of
Period
Buildings Total Investment Accumulated Related
and Properties Depreciation Mortgages
Description Land (5) Improvements (2) (4) (1) (3) Payable
<S> <C> <C> <C> <C> <C>
Volusia Point
Shopping Center
Daytona Beach, FL 1,800,000 7,383,894 9,183,894 2,765,012 --
Systech Building
San Diego, CA 482,163 6,326,383 6,808,546 3,262,745 --
2,282,163 13,710,277 15,992,440 6,027,757 --
<PAGE>
SCHEDULE III (continued)
NOTES:
(1) Depreciation is based on a 30 year life, straight-line method for
buildings. Tenant improvements are amortized over the life of the
related lease using the straight-line method.
<S> <C> <C>
(2) Reconciliation of real estate:
Balance at December 31, 1993 $ 14,824,256
Additions during period-improvements $ 684,626
Less: Retirements (16,516) 668,110
Balance at December 31, 1994 15,492,366
Additions during period-improvements 561,552
Less: Retirements (159,838) 401,714
Balance at December 31, 1995 15,894,080
Additions during period-improvements 98,360
Less: Retirements -- 98,360
Balance at December 31, 1996 $ 15,992,440
(3) Reconciliation of accumulated depreciation:
Balance at December 31, 1993 $ 4,654,726
Depreciation during period $ 431,171
Less: Retirements (14,051) 417,120
Balance at December 31, 1994 5,071,846
Depreciation during period 543,494
Less: Retirements (159,838) 383,656
Balance at December 31, 1995 5,455,502
Depreciation during period 572,255
Less: Retirements -- 572,255
Balance at December 31, 1996 $ 6,027,757
(4) The aggregate cost of real estate at December 31, 1996 for Federal income tax
purposes is $22,802,414.
(5) There were no additions to land subsequent to acquisition.
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULES
THE PARTNERS
USAA REAL ESTATE INCOME INVESTMENTS I LIMITED PARTNERSHIP:
Under date of January 29, 1997, we reported on the balance sheets
of USAA Real Estate Income Investments I Limited Partnership as
of December 31, 1996 and 1995, and the related statements of
income, partners' equity, and cash flows for each of the years in
the three-year period ended December 31, 1996. In connection
with our audits of the aforementioned financial statements, we
also have audited the related financial statement schedules as
listed in Item 14(a)2. These financial statement schedules are
the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial
statement schedules based on our audits.
In our opinion, such financial statement schedules, when
considered in relation to the basic financial statements taken as
a whole, present fairly, in all material respects, the
information set forth therein.
/s/KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
San Antonio, Texas
January 29, 1997
<PAGE>
<TABLE>
PLAZA ON THE LAKE
BALANCE SHEETS
DECEMBER 31, 1995 and 1994
<CAPTION>
1995 1994
<S> <C> <C>
ASSETS
Rental property, net (notes 2, 3 and 5) $ 7,659,893 7,702,603
Accounts receivable, net of allowance
for doubtful accounts of $30,000
and $11,000 65,676 54,742
Notes receivable from tenants (note 6) 39,795 90,738
Deferred rent and other assets, at
amortized cost, net of allowance of
$664,912 in 1995 and 1994 (notes 4 and 6) 403,972 326,891
$ 8,169,336 8,174,974
LIABILITIES AND OWNER'S EQUITY
Mortgage payable (note 5) $ 5,440,000 5,440,000
Accounts payable 31,225 86,660
Accrued expenses and other liabilities 310,925 234,846
Total liabilities 5,782,150 5,761,506
Owner's equity 13,547,555 13,496,444
Cumulative net loss (11,160,369) (11,082,976)
Total owner's equity 2,387,186 2,413,468
$ 8,169,336 8,174,974
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
PLAZA ON THE LAKE
STATEMENTS OF OPERATIONS AND OWNER'S EQUITY
Years Ended December 31, 1995, 1994 and 1993
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
INCOME
Rental income $ 1,594,840 1,520,306 1,482,447
Less direct expenses, including
depreciation of $256,115, $278,400
and $318,605 (993,927) (1,122,887) (1,258,711)
Provision for investment property
write-down (note 3) -- -- (1,000,000)
Net operating income (loss) 600,913 397,419 (776,264)
EXPENSES
General and administrative 65,549 66,852 89,248
Interest 612,757 605,535 604,295
Total expenses 678,306 672,387 693,543
Net loss (77,393) (274,968) (1,469,807)
Owner's equity at beginning of year 2,413,468 2,607,764 3,898,415
Contributions by the owner 51,111 80,672 179,156
Owner's equity at end of year $ 2,387,186 2,413,468 2,607,764
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
PLAZA ON THE LAKE
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1995, 1994 and 1993
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (77,393) (274,968) (1,469,807)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation 256,115 278,400 318,605
Amortization 61,720 57,510 53,045
Loss on retirement of assets 28,039 -- --
Investment property write-down 1,000,000
Decrease in accounts and notes receivable 40,009 31,687 40,834
Increase in deferred charges and
other assets (138,801) (119,104) (17,043)
Increase (decrease) in accounts payable,
accrued expenses and other liabilities 20,644 30,548 (25,249)
Cash provided by (used in) operating activities 190,333 4,073 (99,615)
Cash used in investing activities -
Additions to rental properties (241,444) (84,745) (79,641)
Cash provided by financing activities -
Contributions from owner 51,111 80,672 179,156
Net change in cash -- -- (100)
Cash at beginning of year -- -- 100
Cash at end of year $ -- -- --
See accompanying notes to financial statements.
</TABLE>
<PAGE>
PLAZA ON THE LAKE
NOTES TO FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
1. Organization, Summary of Significant Accounting Policies and
Other
Pursuant to the requirements of Staff Accounting Bulletin
No. 71, a registrant is to file separate audited financial
statements for a property which is the underlying asset of a
mortgage loan when the balance of the mortgage loan is
greater than or equal to 20% of the registrant's total
assets. In accordance with Rule 3-09 of Regulation S-X,
financial statements are to be filed for the same periods
and dates as the audited financial statements of the
registrant. These separate financial statements are
required to be audited only for those fiscal years for which
the 20% test is met.
Plaza on the Lake, a three-story office building in Austin,
Texas, became a wholly-owned property of USAA Real Estate
Company effective January 1, 1987. USAA Real Estate Company
originally held a second mortgage on this property until the
default of the borrower on February 9, 1987, at which time
USAA Real Estate Company accepted a deed to the property and
replaced the borrower on the first lien held by USAA Real
Estate Income Investments I Limited Partnership.
The rental property is valued at cost less provisions for
investment property write-down. See note 3.
In March 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-lived Assets and
Assets to be Disposed Of" (FAS No. 121). The statement,
which is effective for fiscal years beginning after December
15, 1995, requires that an entity evaluate long-lived assets
and certain other identifiable intangible assets for
impairment whenever events or changes in circumstances
indicate that the carrying amounts of the assets may not be
recoverable. An impairment loss meeting the recognition
criteria is to be measured as the amount by which the
carrying amount for financial reporting purposes exceeds the
fair value of the asset.
Generally, for properties to be held and used, FAS No. 121
would require recognition of an impairment loss if the
undiscounted cash flows are less than the carrying amount of
the asset. Based on management's current estimates of the
undiscounted future cash flows of Plaza on the Lake, the
cash flows exceed the carrying amount of the property. The
cash flows ultimately realized may be more or less than the
amounts used in this analysis. USAA Real Estate Company
plans to adopt FAS No. 121 in 1996 and does not expect the
adoption of the statement to have a material effect, if any,
on Plaza on the Lake's financial position or results of
operations.
<PAGE>
Depreciation is provided over the estimated useful life of
the property using the straight-line method. The estimated
life of the building and improvements is 45 years.
Rental income is recognized under the operating method,
whereby aggregate rentals are reported as income on the
straight-line basis over the life of the lease. Rental
income recognized was $86,821, $117,672 and $102,588 more
than the amount due per the lease agreements for the years
ended December 31, 1995, 1994 and 1993, respectively.
No provision for income taxes has been made because the
property is not a separate taxable entity.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
2. Rental Property
Rental property at December 31 consisted of the following:
1995 1994
Building and Improvements $ 8,966,658 8,837,734
Land 2,007,473 2,007,473
10,974,131 10,845,207
Less accumulated depreciation (3,314,238) (3,142,604)
$ 7,659,893 7,702,603
3. Provision for Investment Property Write-down
Under generally accepted accounting principles, USAA Real
Estate Company provides for a permanent impairment of value
on a property when it becomes probable that the property
cannot recover its cost basis, reduced by depreciation,
during its expected holding period. Through detailed
analysis, a permanent impairment of value is estimated by
comparing a property's depreciated cost to its market value,
which is estimated based on the expected sales price of the
property, or internal computations. Any loss in value
deemed permanent is recognized as a write-down in value of
that property. In 1993, USAA Real Estate Company determined
that Plaza on the Lake had sustained a permanent impairment
of value. An investment property write-down of $1,000,000
was recorded in 1993.
<PAGE>
4. Minimum Future Rentals
Operating leases with tenants have remaining terms from one
to five years. Minimum future rentals are cash payments to
be received under non-cancelable leases over the lease terms
and do not necessarily represent rental income under
generally accepted accounting principles. Rental income
reported in the Statements of Operations is recognized under
the operating method, whereby aggregate rentals are reported
as income on the straight-line basis over the life of the
lease. Approximate minimum future rentals are as follows:
1996 $1,650,000
1997 1,553,000
1998 1,138,000
1999 1,142,000
2000 189,000
Thereafter --
$5,672,000
5. Mortgage Payable
On February 9, 1987, as allowed in the loan documents, upon
default of the borrower, USAA Real Estate Company accepted a
deed on the property effective January 1, 1987, and replaced
Plaza on the Lake Investors, Ltd. as the borrower on the
first lien held by the USAA Real Estate Income Investments I
Limited Partnership. This mortgage loan was in the amount
of $5,440,000 with interest at 10% due monthly.
In addition to the interest income, the Partnership received
3.2% of the gross revenues of the property through year six
and received 3.84% of the gross revenues of the property in
years seven through ten. Interest expense included $68,757,
$61,535 and $60,295 relating to the lender's participation
in gross revenues for the years ended 1995, 1994 and 1993,
respectively. Total interest payments in 1995, 1994 and
1993 were $609,732, $607,729 and $603,918, respectively.
The carrying value of the mortgage payable approximates fair
value at December 31, 1995 due to the short term to maturity
of January 31, 1996.
On January 31, 1996, in accordance with the terms of the
mortgage loan agreement between USAA Real Estate Company, as
borrower, and USAA Real Estate Income Investments I Limited
Partnership, as lender, the principal balance of the
$5,440,000 mortgage loan payable was paid by the borrower
and the underlying note paid in full.
<PAGE>
6. Major Customer Information
During each of the years ended December 31, 1995, 1994 and
1993, approximately $542,000, $535,000 and $535,000 of
rental income was recorded from a single tenant in the
telecommunications industry which represented approximately
35%, 35% and 36% of total rental income, respectively.
During the year ended December 31, 1995, $282,000 and
$172,000 of rental income was recorded from two other
tenants at Plaza on the Lake, representing approximately 18%
and 11% of total rental income, respectively.
At December 31, 1995, Plaza on the Lake had $175,130, net of
allowance of $664,912, of deferred rent and a $39,795 note
receivable due from a tenant in the telecommunications
industry.
7. Economic Dependency
Plaza on the Lake has incurred net losses of $77,393,
$274,968 and $1,469,807 for the years ended December 31,
1995, 1994 and 1993, respectively. Cash deficits generated
by the property are being funded by USAA Real Estate
Company. USAA Real Estate Company intends to continue
funding the property's operating and capital requirements
through cash contributions.
<PAGE>
<TABLE>
SCHEDULE II PLAZA ON THE LAKE
VALUATION AND QUALIFYING ACCOUNTS
For Years Ended December 31, 1995, 1994 and 1993
<CAPTION>
Additions
Balance charged to Balance
at beginning costs and at end
Description of period expenses Deductions of period
<S> <C> <C> <C> <C>
1995 Allowance for doubtful
accounts $ 11,000 19,000 -- 30,000
Allowance for deferred
rent 664,912 -- -- 664,912
$ 675,912 19,000 -- 694,912
1994 Allowance for doubtful
accounts $ 11,000 -- -- 11,000
Allowance for deferred
rent 561,184 103,728 -- 664,912
$ 572,184 103,728 -- 675,912
1993 Allowance for doubtful
accounts $ 60,000 -- 49,000 11,000
Allowance for deferred
rent 457,456 103,728 -- 561,184
$ 517,456 103,728 49,000 572,184
</TABLE>
<PAGE>
<TABLE>
SCHEDULE III PLAZA ON THE LAKE
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1995
<CAPTION>
Cost Capitalized
Initial Cost to Subsequent to
Partnership Acquisition
Buildings
Year of Date and Improve- Carrying
Construction Acquired Description Land Improvements ments Costs
<S> <C> <C> <C> <C> <C> <C>
1985 Jan 1, 1987 Plaza on the
Lake Office
Building
Austin, TX $3,650,000 12,389,715 1,642,221 --
<CAPTION>
Gross Amount at Which
Carried at Close of
Period
Buildings Total Investment Accumulated Related
Year of Date and Properties Depreciation Mortgages
Construction Acquired Description Land (5) Improvements (5) (2) (5) (1) (3) Payable (4)
<S> <C> <C> <C> <C> <C> <C> <C>
1985 Jan 1, 1987 Plaza on the
Lake Office
Building
Austin, TX $2,007,473 8,966,658 10,974,131 3,314,238 5,440,000
</TABLE>
<PAGE>
SCHEDULE III (continued)
NOTES:
(1) Depreciation is based on the straight-line method for the building, with
a 45 year life for 1991 through 1994 and a 30 year life prior to 1991.
Tenant improvements are amortized over the life of the related lease
using the straight-line method.
(2) Reconciliation of real estate:
Balance at December 31, 1992 $ 11,895,553
Additions during period: Improvements $ 79,641
Less: Retirements (5) (1,000,000) (920,359)
Balance at December 31, 1993 10,975,194
Additions during period: Improvements 84,745
Less: Retirements (214,732) (129,987)
Balance at December 31, 1994 10,845,207
Additions during period: Improvements 241,444
Less: Retirements (112,520) 128,924
Balance at December 31, 1995 $ 10,974,131
(3) Reconciliation of accumulated depreciation:
Balance at December 31, 1992 $ 2,760,331
Depreciation during period $ 318,605
Less: Retirements -- 318,605
Balance at December 31, 1993 3,078,936
Depreciation during period 278,400
Less: Retirements (214,732) 63,668
Balance at December 31, 1994 3,142,604
Depreciation during period 256,115
Less: Retirements (84,481) 171,634
Balance at December 31, 1995 $ 3,314,238
(4) The investment property is pledged as security for the mortgage payable.
(5) During 1993, a provision for investment property write-down of $1,000,000
was recognized as the property has sustained a permanent impairment of
value.
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE BOARD OF DIRECTORS AND STOCKHOLDER
USAA REAL ESTATE COMPANY:
We have audited the accompanying balance sheets of Plaza on
the Lake as of December 31, 1995 and 1994 and the related
statements of operations and owner's equity, and cash flows for
each of the years in the three-year period ended December 31,
1995. In connection with our audits of the financial statements,
we also have audited the financial statement schedules as listed
in Item 14(d) of Form 10-K. These financial statements and
financial statement schedules are the responsibility of the
Property's management. Our responsibility is to express an
opinion on these financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of Plaza on the Lake as of December 31, 1995 and 1994 and the
results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 1995, in
conformity with generally accepted accounting principles. Also
in our opinion, the related financial statement schedules, when
considered in relation to the basic financial statements taken as
a whole, present fairly, in all material respects, the
information set forth therein.
/s/KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
San Antonio, Texas
January 31, 1996
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, USAA REAL ESTATE INCOME
INVESTMENTS I LIMITED PARTNERSHIP has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly
authorized:
USAA REAL ESTATE INCOME INVESTMENTS I LIMITED PARTNERSHIP
(Registrant)
BY: USAA INVESTORS I, INC.,
General Partner
BY: /s/Edward B. Kelley
Edward B. Kelley,
Chairman, President,
Chief Operating Officer
and Director
Date: March 25, 1997
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
/s/Edward B. Kelley Date: March 25, 1997
Edward B. Kelley
Director, Chairman of the Board,
President and Chief Operating Officer
of the General Partner
/s/T. Patrick Duncan Date: March 25, 1997
T. Patrick Duncan
Director, Vice Chairman,
Senior Vice President-Operations
of the General Partner
/s/Randal R. Seewald Date: March 25, 1997
Randal R. Seewald
Director, Vice President
Secretary and Legal Counsel
<PAGE>
Exhibit Index
Exhibit Numbered
No. Description Page
3.a Restated Certificate and Agreement
of Limited Partnership dated as of
October 18, 1984, incorporated as
Exhibit A to the Partnership's
Prospectus dated November 16, 1984,
filed pursuant to Rule 424(b),
(Regis. No.2-92845) and
incorporated herein by this reference. --
27 Financial Data Schedules
99.a "Glossary of Terms Used in Prospectus"
pages 64-70 contained in the Prospectus
dated November 16, 1984, filed pursuant
to Rule 424(b) (Regis. No. 2-92845).
99.b "Compensation and Fees to the General
Partner, Advisor and Affiliates" at
pages 12-17 and "Taxable Income and Tax
Losses and Cash Distributions" at pages
44-46 of the Prospectus dated November 16,
1984, filed pursuant to Rule 424(b)
(Regis. No. 2-92845.)
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 973,096
<SECURITIES> 0
<RECEIVABLES> 72,175
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 15,992,440
<DEPRECIATION> 6,027,757
<TOTAL-ASSETS> 11,396,279
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 11,210,447
<TOTAL-LIABILITY-AND-EQUITY> 11,396,279
<SALES> 0
<TOTAL-REVENUES> 1,449,252
<CGS> 0
<TOTAL-COSTS> 863,601
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 356,072
<INCOME-TAX> 0
<INCOME-CONTINUING> 356,072
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 356,072
<EPS-PRIMARY> 6.46
<EPS-DILUTED> 0
</TABLE>
EXHIBIT 99.a
GLOSSARY OF TERMS USED IN PROSPECTUS
"Act" means the California Revised Limited Partnership Act,
Title 2, Chapter 3, of the California Corporations Code.
"Accountants" means Peat, Marwick, Mitchell & Co., or such
other nationally recognized firm of independent public
accountants as shall be engaged by the General Partner for the
Partnership.
"Acquisition Expenses" means expenses including but not
limited to legal fees and expenses, travel and communications
expenses, costs of appraisals, non-refundable option payments on
property not acquired, accounting fees and expenses, title
insurance, and miscellaneous expenses related to selection and
acquisition of Real Properties or funding of Mortgage Loans,
whether or not acquired or funded.
"Acquisition Fees" means the total of any and all fees and
commissions paid by any Person to any other Person, including the
General Partner, the Advisor and their Affiliates, in connection
with the selection, purchase, or investment in, any Real Property
by the Partnership or by the seller of a Real Property, whether
designated as a real estate commission, acquisition fee, finder's
fee, selection fee, development fee, construction fee,
nonrecurring management fee, mortgage placement or origination
fee, or any other fee or commission of a similar nature howsoever
designated and howsoever treated for tax or accounting purposes.
"Additional Limited Partners" means those persons admitted
to the Partnership pursuant to Section 3.2.3 of the Agreement.
"Additional Rights Units" means the additional 7,500 Units
which the General Partner, at its option, may authorize the Sales
Agent to offer and sell.
"Adjusted Capital Contribution" means, for each fiscal
quarter, the original Capital Contribution of a Holder for or
attributable to his Units, reduced by the total cash distributed
to him and prior Holders of his Units from Residual Proceeds and
from Working Capital Reserves (to the extent cash distributed
from Working Capital Reserves came from Residual Proceeds) or
from Net Proceeds.
"Admission Dates" means the dates on which Subscribers for
Units shall be admitted to the Partnership as Limited Partners.
"Advisor" means USAA Financial Services Company, or any
successor, under the Advisory Agreement.
"Advisory Agreement" means the Advisory Agreement between
the Partnership and the Advisor.
<PAGE>
"Affiliate" means, when used with reference to a specified
Person, (i) any Person that directly or indirectly controls or is
controlled by or is under common control with the specified
Person, (ii) any Person that is an officer of, partner in,
director or trustee of, or serves in a similar capacity with
respect to, the specified Person or of which the specified Person
is an officer, partner or trustee, or with respect to which the
specified Person serves in a similar capacity, and (iii) any
Person that, directly or indirectly, is the beneficial owner of
10% or more of any class of equity securities of the specified
Person or of which the specified Person is directly or indirectly
the owner of 10% or more of any class of equity securities. An
Affiliate of the Partnership or the General Partner does not
include a Person who is a partner in a partnership or joint
venture with the Partnership or any other Affiliate of the
Partnership if such Person is not otherwise an Affiliate of the
Partnership or the General Partner.
"Agreement" means the Agreement of Limited Partnership of
USAA Real Estate Income Investments I, A California Limited
Partnership.
"Application and Commitment Fees" means all fees and charges
payable by prospective borrowers, applicants or obligors on
Partnership Mortgage Investments committed to be made by the
Partnership, which are paid to the Advisor and howsoever
designated or treated for tax or accounting purposes.
"Assignee" means a Person who has acquired a Limited
Partner's beneficial interest in one or more Units but who is
neither a Limited Partner nor an Assignee of Record.
"Assignee of Record" means an Assignee who has acquired a
beneficial interest in one or more Units and whose ownership of
the Units is recorded on the books of the Partnership and is the
subject of a written instrument of assignment in compliance with
the Agreement, the effective date of which assignment has passed.
"Bank" means USAA Federal Savings Bank, an Affiliate of the
General Partner and the Advisor.
"Capital Account" means, with respect to each Partner, the
account established for each Partner pursuant to Section 3.4 of
the Agreement, which will initially equal the Capital
Contribution of such Partner and throughout the existence of the
Partnership will be (a) increased by the amount of Taxable Income
allocated to such Partner and (b) reduced by the amount of Tax
Losses allocated to such Partner and the amount of Net Cash Flow
and Residual Proceeds distributed to such Partner.
"Capital Contribution" means the total amount of money
contributed to the Partnership (prior to the deduction of any
selling commissions or expenses) by all the Partners or any class
of Partners or any one Partner, as the case may be (or the
predecessor Holders of the Units of such Partners or Partner),
reduced in the case of the Limited Partners by any return of
uninvested funds pursuant to Section 3.3 of the Agreement (but
not reduced by any reductions in the related Capital Accounts or
by any tax basis adjustment).
<PAGE>
"Cash Flow" means, with respect to any fiscal period, all
Gross Revenue from operations in the ordinary course of business,
without deductions for depreciation or the Management Fee but
after deducting payments for Operating Cash Expenses (other than
such Management Fee), capital expenditures with respect to
properties and any amount set aside for the restoration or
creation of Reserves.
"Certificate" shall mean the Certificate of Limited
Partnership required to be filed in the office of the Secretary
of State of the State of California pursuant to Section 15621 of
the Corporations Code of the State of California.
"Closing Date" means the date of termination of the public
offering of Units designated by the General Partner, but no later
than one year from the date of the Prospectus.
"Code" means the Internal Revenue Code of 1954, as amended,
or any corresponding provision or provisions of succeeding law.
"Competitive Brokerage Commission" means a real estate
brokerage commission paid for the sale of property which is
reasonable, customary and competitive in light of the size, type
and location of the property.
"Controlling Person" means any person, whatever his or her
title, who performs functions for the General Partner similar to
those of (Chairman or member of the board of directors; (2)
executive management, such as the president, vice-president or
senior vice-president, corporate secretary or treasurer; (3)
senior management, such as the vice-president of an operating
division who reports directly to executive management; or (4)
those holding 5% or more equity interest in the General Partner
or a person having the power to direct or cause the direction of
a General Partner, whether through the ownership of voting
securities, by contract, or otherwise.
"Cost of Partnership Property" means the total consideration
paid to acquire a Partnership Property, whether paid to the
seller, the General Partner or any other person, including cash
and all liens and mortgages on the Real Property and the "Cost of
All Partnership Properties" shall be the sum total of the "Cost
of Partnership Property" for each Partnership Property.
"Distributions" means any cash or other property distributed
to Holders and the General Partner arising from their interest in
the Partnership, but not any payments to the General Partner
under the provisions of Article VIII, "Compensation to the
General Partner and Affiliates," or Article VII, "Partnership
Expenses" of the Agreement.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, or any corresponding provision or provisions of
succeeding law.
"Existing Partnerships" means USAA Income Properties I and
USAA Income Properties II, both Delaware limited partnerships.
<PAGE>
"Expense Allowance" means an amount equal to two percent
(2%) of the Gross Proceeds payable by the Partnership to the
Sales Agent for the payment of Organization and Operating
Expenses.
"Front-End Fees" means any fee, commission or expense paid
by any party for any services to the Partnership during the
Partnership's organization and acquisition phase, including
Organization and Offering Expenses, Acquisition Fees, Acquisition
Expenses and similar fees however designated.
"General Partner" means USAA Income Investments I, Inc., a
Texas Corporation, or any other Person who succeeds it as a
General Partner of the Partnership.
"Gross Proceeds" means the aggregate total of the Capital
Contributions of the Limited Partners.
"Gross Revenues" means all revenues resulting from the
operation of the Partnership Properties in the ordinary course of
business and such receipts of other general partnerships or joint
ventures in which the Partnership has invested. The term "Gross
Revenues" shall not include revenues from Mortgage Repayments or
Sale, Financing or Refinancing Proceeds, or other disposition of
Partnership Properties.
"Holder" means the owner of Units who is either a Limited
Partner or an Assignee of Record. The General Partner is not a
Holder except to the extent it owns Units.
"Initial Residual Proceeds" means Residual Proceeds received
before the expiration of 2 years following the date of funding
the Mortgage Loan or purchasing the Real Property resulting in
the Residual Proceeds.
"Investment in Properties" means the amount of Gross
Proceeds paid or allocated either to the purchase of Real
Properties acquired by the Partnership or to the making of
Mortgage Loans made by the Partnership, Working Capital Reserves
not in excess of 2% of the Gross Proceeds, and any other cash
payment such as interest and taxes but excluding Front-End Fees.
"Limited Partner" means the original Limited Partner, and
any other Persons who are admitted to the Partnership as
Additional or Substitute Limited Partners.
"MAI Appraiser" means an independent appraiser who is a
member in good standing of the American Institute of Real Estate
Appraisers ("MAI") who has had not less than five (5) years of
experience in appraising property that is comparable to the
particular property involved and that is located in the vicinity
in which the particular property is located.
"MAI Appraisal" means an appraisal made by an MAI Appraiser.
<PAGE>
"Majority Vote" means the affirmative vote or written
consent of Limited Partners who own more than fifty percent (50%)
of the outstanding Units of the Partnership at the time of the
vote.
"Management Fee" means the fee payable to the General
Partner under the provisions of Paragraph 8.2 of the Partnership
Agreement.
"Maximum Units" means 50,000 Units.
"Minimum Units" means 6,000 Units.
"Mortgage Investments" or "Partnership Mortgage Investments"
means the investments of the Partnership described in the
Prospectus, or investments not so described but which are made or
purchased out of the Net Proceeds or out of the proceeds (other
than Residual Proceeds) of a collection, repayment, sale,
retirement or other disposition of a particular Partnership
Mortgage Investment by the Partnership and which are subsequently
described in communications to the Limited Partners, and all
extensions, renegotiations, replacement or renewals thereof,
together with such real and personal property, if any, as is
acquired by the Partnership in connection therewith. In the case
of any particular Partnership Mortgage Investment owned by
another partnership or joint venture in which the Partnership
shall be a partner or joint venturer, the term Partnership
Mortgage Investment shall include any Mortgage Loan made or owned
by such partnership or joint venture. The term "Mortgage
Investment" shall mean any of the "Partnership Mortgage
Investments" so described.
"Mortgage Loan" means participating first mortgage loans,
evidenced by notes, bonds, debentures and other evidences of
indebtedness, and which are secured by mortgage trust deeds,
deeds of trust, deeds to secure debt, or other liens on interests
in land upon which improvements are constructed and which
constitutes Qualified Real Estate.
"Mortgage Repayment" means any Partnership transaction
giving rise to Repayment Proceeds.
"Mortgage Servicing Fee" means the fees and other
compensation payable by the Partnership to the Advisor or its
Affiliates on account of its services to the Partnership in
collecting principal and interest and other payments to which the
Partnership is entitled on the Mortgage Investments, the
administration and supervision of the rights and participations
of the Partnership under its Mortgage Investments, the
supervision of legal proceedings where such payments are
delinquent or in arrears and otherwise supervising and monitoring
the Partnership and the Mortgage Investments made by the
Partnership.
<PAGE>
"Net Cash Flow" means, with respect to any fiscal period,
Cash Flow and any portion of the Reserves deemed by the General
Partner not required for the Partnership's operations minus the
Management Fee.
"Net Proceeds" means the Gross Proceeds less Organization
and Offering Expenses paid or payable by the Partnership.
"Offering Period Investment Income" means all investment
income earned by the Partnership on the temporary investment of
the Capital Contributions of the Partners for the period after
the admission of the first Additional Limited Partner (other than
the General Partner) and prior to the Closing Date.
"Operating Cash Expenses" means, with respect to any fiscal
period, except to the extent paid with cash withdrawn from
Reserves therefor, the amount of cash disbursed by the
Partnership in such period in the ordinary course of its
business, as follows: the Management Fee payable to the Advisor,
debt service and other payments required to be made in connection
with any loan to the Partnership or any loan secured by a lien on
any of the Partnership's property, and payments made on behalf of
the Partnership for expenses incurred by it for advertising and
promotion, repairs, maintenance, management and utilities for
specific properties, computer time sharing, accounting (excluding
Partnership bookkeeping), statistical services, printing and
mailing of reports and communications required by regulatory
agencies or for distribution to Limited Partners or others as
required by this Agreement, but not including: (1) any overhead
expenses or any salaries paid by the General Partner or the
Advisor to its officers, directors or Affiliates, (2)
expenditures paid out of Reserves and (3) expenditures
attributable to obtaining Residual Proceeds. Operating Cash
Expenses may include the out-of-pocket expenses incurred by the
General Partner, the Advisor or any Affiliate (including payments
to salaried employees and payment for services and supplies
obtained from third parties), in performing general management
and administrative services for the Partnership (but not
including any overhead expenses) which services, but for their
performance by the General Partner or such Affiliate, would be
required to be performed for the Partnership by a non-affiliated
person; provided that such expenses do not exceed the amount
which the Partnership would be required to pay to non-affiliated
persons for comparable services which could reasonably be made
available to the Partnership and, further provided, that such
expenses do not constitute expenditures for rent or depreciation,
utilities, capital equipment, salaries, fringe benefits or travel
expenses (except to the extent that such expenses are Front-End
Fees) incurred by or allocated to Controlling Persons of the
General Partner or its Affiliates.
"Organization and Offering Expenses" means those expenses
incurred in connection with organizing the Partnership and
preparing the Units for registration, qualification or exemption
under federal and state securities laws and subsequently offering
<PAGE>
and distributing the Units to the public, including sales
commissions paid to the Sales Agent and other broker-dealers in
connection with the distribution of the Partnership Units,
registration and filing fees, printing costs, legal and
accounting fees, and all advertising expenses but not to exceed
the Expense Allowance.
"Partners" means collectively, the General Partner and all
the Limited Partners. "Partner" means any one of the Partners.
"Partnership" means USAA Real Estate Income Investments I, A
California Limited Partnership.
"Partnership Properties" means all Real Property(ies) or any
interest in a Real Property(ies) acquired directly or indirectly
by the Partnership, and/or all Mortgage Loans funded directly or
indirectly by the Partnership. Reference to 'Partnership
Property' shall be to any one of them.
"Person" means any individual, partnership, corporation,
trust or other entity.
"Prospectus" means the final prospectus contained in the
registration statement filed with the Securities and Exchange
Commission on Form S-11, as amended or supplemented or later
filed with the Securities and Exchange Commission.
"Qualified Plans" or "Retirement Plans" means employee
pension or profit-sharing plans established under Section 401 of
the Code, Individual Retirement Accounts established under
Section 408 of the Code ("IRAs") and H.R. 10 ("Keogh") Plans.
"Qualified Real Estate" or "Qualified Property(ies)" or
"Qualified Real Property" means office buildings, shopping
centers, commercial, industrial, and warehouse distribution
buildings and facilities, retail properties, apartment complexes,
hotels and other similar types of real property which are income
producing. Qualified Real Estate does not include undeveloped
land, or land under development, agricultural properties, single
family residual homes, condominiums, secondary or recreation
homes, nursing homes, gaming facilities or mobile home parks.
"Real Property" means a Qualified Real Property, or any
interest in a Qualified Real Property, acquired directly or
indirectly by the Partnership, excluding Mortgage Loans.
"Repayment Proceeds" means the net cash proceeds received by
the Partnership as proceeds of the return of principal or
interest for any Mortgage Investments or as proceeds of any
Mortgage Investments received contemporaneously with the
collection, repayment, sale, retirement or other disposition of
such Partnership Mortgage Investments (including, without
limitation, all repayments of principal, payments of fixed
interest, participations in sale proceeds, proceeds of sale of
land, payment of deferred interest and proceeds of exercise of
any option or contract right received contemporaneously with the
<PAGE>
final disposition of a Mortgage Investment) after retirement of
any indebtedness applicable thereto and after deducting any other
expenses incurred in connection therewith; provided, however,
that the return of principal from a disposition of a Partnership
Mortgage Investment shall not be deemed Repayment Proceeds to the
extent such return of principal is reinvested by the Partnership
within two years of the date on which the Partnership funded such
Mortgage Investment, or in the event the General Partner
determines that it is necessary to invest such additional sums to
protect the value of any of the Partnership's Mortgage
Investments, and such return of principal is not distributed to
the Limited Partners, as contemplated by the Prospectus.
"Reserves" means, with respect to any fiscal period, funds
set aside or amounts allocated during such period to reserves
which shall be maintained in amounts deemed sufficient by the
General Partner for working capital and to pay taxes, insurance,
or other costs or expenses incident to the ownership or operation
of the Partnership's investments.
"Residual Proceeds" means all cash receipts arising from
Sale, Financing or Refinancing Proceeds and Repayment Proceeds,
less the following:
(i) the amount of cash necessary for the payment of all
debts and obligations of the Partnership (including non-recourse
debts) related to the particular sale, financing or refinancing
or Mortgage Loan repayment, but not including the Subordinated
Real Estate Commission payable to the Advisor upon the sale of
the Partnership Property;
(ii) the amount of cash paid or to be paid by the
Partnership in connection with such Sale, Financing or
Refinancing (which shall include, with regard to damage
recoveries or insurance or condemnation proceeds, cash paid or to
be paid in connection with repairs, replacements or renewals, in
the discretion of the General Partner, relating to damage to or
partial condemnation of the affected property);
(iii) the amount considered appropriate by the General
Partner to provide Reserves to pay taxes, insurance, or other
costs or expenses of the Partnership (including costs of
improvements or additions in connection with any property) or to
provide for the purchase of the underlying land in connection
with any property; and
(iv) any amount considered appropriate by the General
Partner to be used to purchase from any partner or co-venturer an
interest in a property which is jointly owned.
"Sale, Financing or Refinancing" means any Partnership
transaction (other than the receipt of Capital Contributions) not
in the ordinary course of its business, including, without
limitation: sales, exchanges or other dispositions of real or
<PAGE>
personal property, condemnations, recoveries of damage awards and
insurance proceeds (other than business or rental interruption
insurance proceeds) not used for the repair or reconstruction of
properties, any mortgage refinancings or borrowings, or repayment
of mortgage balances and related premiums, but excluding the
disposition of a Property whether in the form of a rescission,
exchange or resale or pursuant to an option or other similar
arrangement entered into at or prior to two (2) years from the
date of the Prospectus if the proceeds from such transfer back
are reinvested in another Property.
"Sale, Financing or Refinancing Proceeds" means the proceeds
of any Partnership transaction which is a Sale, Financing or
Refinancing as defined above.
"Sales Agency Agreement" means the sales agency Agreement
between the Partnership and the Sales Agent pursuant to which the
Sales Agent shall offer and sell the Units.
"Sales Agent" means USAA Investment Management Company.
"Selling Price" means the total gross contract price
receivable by the Partnership from the purchaser upon the sale of
a Partnership Property, without reduction for any mortgage or
other indebtedness to which the Partnership Property may be
subject, or any fees or expenses which may be attributable to
such sale.
"Sponsor" means any Person directly or indirectly
instrumental in organizing, wholly or in part, the Partnership or
any Person who will manage or participate in the management of
the Partnership, including the General Partner and an Affiliate
of such Persons, but excluding (i) any person whose only
relationship with the Partnership or the General Partner is that
of an independent property or asset manager whose only
compensation from the Partnership is as such; (ii) employees of
the General Partner or its Affiliates who are not also officers
or directors of the General Partner or its Affiliates; and (iii)
wholly independent third parties such as attorneys, accountants,
appraisers and underwriters whose only compensation from the
Partnership is for professional services rendered in connection
with the offering of Units or the operations of the Partnership.
"Subordinated Real Estate Commission" is as defined in
Section 8.3 of the Agreement.
"Subscriber" means a person who has completed a Subscription
Agreement and submitted it and payment for the number of Units
being purchased, to the General Partner.
"Subscription Agreement" means the subscription agreement
signed or to be signed by Limited Partners when they purchase
Units, a copy of which is included in the Prospectus.
"Substituted Limited Partner" means any Person admitted to
the Partnership as a Limited Partner pursuant to the provisions
of Section 13.3 of the Agreement.
<PAGE>
"Taxable Income" or "Tax Losses" means the ordinary income
or losses, respectively, of the Partnership for each fiscal year
or portion thereof (including the Partnership's share of income
or loss of any partnership, venture or other entity which owns a
particular property) as determined for federal income tax
purposes, as well as, where the context requires, related federal
tax items such as capital gain or loss, deductions, tax
preferences, credits and depreciation recapture, it being
understood that losses for federal income tax purposes include
all amounts treated as a return of capital for federal income tax
purposes by reason of tax basis adjustments.
"Total Outstanding Units" means all Units issued at or
before the Closing Date.
"Unit" means the interest of a Limited Partner represented
by a Capital Contribution of $500.
EXHIBIT 99.b
COMPENSATION AND FEES TO THE GENERAL PARTNER,
ADVISOR AND AFFILIATES
The following table summarizes the forms, estimated amounts
and recipients of compensation, fees, or other distributions to be
received by the General Partner, the Advisor and Affiliates during
the various phases of the organization and operations of the
Partnership.
METHOD AND ESTIMATED
AMOUNT ASSUMING
ENTITY MAXIMUM NUMBER OF
RECEIVING FORM OF UNITS, INCLUDING
COMPENSATION COMPENSATION (1) ADDITIONAL UNITS, IS SOLD
OFFERING AND ORGANIZATIONAL STAGE
USAA Investment Selling commissions 4% of Gross Proceeds. ($20
Management as the Sales Agent per Unit sold; $120,000 on
Company (the in the offering of sale of 6,000 Minimum
"Sales Agent") the Units Offering Units; $1,000,000
if 50,000 Units are sold;
$1,150,000 if 57,500 Units
are sold).
USAA Investment Non-accountable 2% of Gross Proceeds
Management sales expense (2) ($60,000 on sale of 6,000
Company (the Minimum Offering Units;
"Sales Agent") $500,000 if 50,000 Units
are sold; $575,000 if
57,500 Units are sold).
USAA Federal One-time IRA Set- $10 per Unit purchased
Savings Bank Up and Custodial through an IRA established
("Bank") Fee. (3) by the investors, up to a
maximum of eighty seven
one-hundredths of one
percent (.87%) of Gross
Proceeds, to be paid by
Sales Agent out of
Selling Commissions.
Actual amounts to be
received depend upon the
number of investors
establishing IRAs at Bank
with their investment in
the Units and the amount
invested in each such
IRA.
<PAGE>
INVESTMENT STAGE
USAA Financial Acquisition and A maximum of 4% of the
Services Expenses Fees for Gross Proceeds.
Company (the finding and recom- ($1,000,000 if 50,000 Units
"Advisor") mending investments sold; $1,150,000 if 57,500
to the General Units are sold), subject to
Partner. (4) the limitation that the
aggregate of all
Acquisition Fees and Loan
Origination and
Commitment Fees paid to
the Advisor shall not
exceed 4% of Gross
Proceeds.
USAA Financial Loan Origination $1,000,000 if 50,000 Units
Services and Commitment Fees sold; $1,150,000 if 57,500
Company (the and Expenses. A Units are sold, subject to
"Advisor") maximum of 4% of the limitation that the
Gross Proceeds. aggregate of all Acquisi-
Payable solely by tion Fees and Loan Origi-
borrowers and pro- nation and Commitment Fees
spective borrowers paid to the Advisor shall
and not directly not exceed 4% of the Gross
from proceeds of Proceeds.
the offering. (4)
Sales Agent Annual Advisory Fee An annual fee of 1/2 of 1%
for any interim of the amount of any inter-
investment in a im investment in a money
money market fund market fund or mutual fund
or mutual fund sponsored by USAA or any
sponsored by USAA affiliate of USAA. (See
or any affiliate of "Investment Objectives and
USAA paid by the Policies -- Interim Invest-
fund in which the ments".)
investment is made.
<PAGE>
OPERATIONAL STAGE
USAA Investors I, A 1% allocation of Actual amounts to be
Inc. (the the Partnership's received depend upon
"General Taxable Income and the results of Partnership,
Partner") Tax Losses and 1% and cannot be determined
of all distribu- at this time.
tions of Net Cash
Flow when and as
such distributions
are made to the
Limited Partners.
Advisor Property Management 4% of Gross Revenue from
Fee. operations for managing
the Partnership's
business but in any event
not in excess of 9% of
Cash Flow, subject to the
limitation that the
aggregate Property
Management Fee and
Mortgage Servicing Fee
shall not exceed the
lesser of 4% of Gross
Proceeds or 9% of Cash
Flow. Actual amount to
be received depends upon
the results of the
Partnership's operation
and cannot be determined
at this time. (5)(6)(7)
Advisor Annual Mortgage An annual fee of 1/4 of 1%
Servicing Fee. of amounts funded by the
Partnership in Mortgage
Loans which are serviced
by the Advisor, subject
to the limitation that
the aggregate Property
Management Fee and
Mortgage Servicing Fee
shall not exceed the
lesser of 4% of Gross
Proceeds or 9% of Cash
Flow. Actual amount to
be received depends upon
the funds invested in
mortgages and is not
determinable at this
time. (6)(7)
<PAGE>
LIQUIDATION PHASE
Advisor Real estate com- A real estate brokerage
missions upon sales commission not to exceed
of properties. 1% of the aggregate
Selling Prices of the
properties sold or 50% of
the Competitive Brokerage
Commission, subordinated
to (i) the repayment to
the Limited Partners of
an amount equal to their
Adjusted Capital
Contributions; (ii) the
payment to the Limited
Partners of a cumulative
annual cash return equal
to 9% of their average
Adjusted Capital
Contributions for all
fiscal years non-compounded;
and (iii) the
payment to all Partners
of an amount equal to
their respective positive
Capital Account balances
to the extent such
balances exceed the
amounts provided for in
the preceding clauses (i)
and (ii). The actual
amount of this
compensation cannot be
determined at this time
because it depends upon
the actual results of
operations of the
Partnership.
<PAGE>
General Partner General Partner's An aggregate of 10% of all
share of Residual Residual Proceeds remaining
Proceeds. after (i) the repayment to
the Limited Partners of
an amount equal to their
Adjusted Capital
all fiscal years, non-
compounded; (iii) the
payment to all Partners
of an amount equal to
their respective positive
Capital Account balances
to the extent such
balances exceed the
amounts provided for in
the preceding clauses (i)
and (ii); and (iv)
payment to the Advisor of
the real estate brokerage
commission described
above. The actual amount
of this compensation
cannot be determined at
this time because it
depends upon the actual
results of operations of
the Partnership.
<PAGE>
(1) The Partnership will commit not less than 85% of the gross
proceeds of this offering to Investment in Properties. (See
"Glossary".)
(2) The Partnership will provide USAA Investment Management
Company with a non-accountable expense allowance equal to 2%
of the gross proceeds of the offering to cover expenses
incurred in connection with the formation of the Partnership
and the offering and sale of the Units. Further, the General
Partner and its Affiliates will be reimbursed by the
Partnership for: (i) the actual cost to the General Partner,
the Advisor or their Affiliates of goods and materials used
for or by the Partnership and obtained from entities which are
not affiliated with the General Partner, or Advisor, (ii)
salaries and related salary expenses for certain services
which could be performed directly for the Partnership by
independent parties (subject to certain limitations set forth
in the Partnership Agreement), and (iii) the cost of
Partnership reports and communications to Limited Partners.
No reimbursement under (ii) or (iii) above is permitted for
services for which the General Partner or any of its
Affiliates receives a separate fee. The following items are
excluded from the allowable reimbursement: (i) salaries,
fringe benefits, travel expenses and other administrative
items incurred or allocated to persons controlling the General
Partner, the Advisor, or their Affiliates and (ii) any
overhead expenses of the General Partner, the Advisor or its
Affiliates, such as rent, depreciation, utilities, capital
equipment and other administrative items. The Partnership's
annual report to Limited Partners will include a breakdown of
reimbursements made to the General Partner, the Advisor, and
their Affiliates. Reimbursements for expenses will be made to
the General Partner, Advisor and their Affiliates regardless
of whether any distributions are made to the Limited Partners.
(3) The set-up and custodial fee to be paid by the Sales Agent to
the Bank is a one-time fee. Any further annual custodial or
maintenance fee charged by the Bank for IRAs set up by it must
be paid directly by the IRA participant.
(4) The Advisor or its Affiliates (other than the Partnership or
the General Partner) will receive Loan Origination and
Commitment Fees from borrowers and prospective borrowers as
compensation for its services in connection with the
Partnership's receipt of loan applications and issuance of
commitments to make Mortgage Loans, subject to the limitations
described below. The total amount of such Loan Origination
and Commitment Fees to be paid by borrowers plus the total
Acquisition Fees paid by the Partnership to the Advisor or its
Affiliates will not exceed 4% of the Gross Proceeds of the
offering or a maximum of $1,000,000 (subject to increase to
$1,150,000 if the Additional Rights Units described under Plan
of Distribution are fully exercised by the General Partner),
which is equivalent to approximately 4.2% of the proceeds of
the offering net of selling commissions. Any Loan Origination
and Commitment Fees paid by borrowers or prospective borrowers
<PAGE>
in excess of 4% of the Gross Proceeds of the offering will be
remitted by the Advisor to the Partnership. Such excess fees
will be retained by the Partnership to make additional
Partnership investments or for Reserves. If the Partnership
uses mortgage principal repayments (which do not constitute
Residual Proceeds) to make additional Mortgage Loans or to
purchase additional Real Property, the Advisor or its
affiliates may receive additional Loan Origination or
Commitment Fees, subject, however, to the restriction that the
Advisor and such Affiliates may not receive such additional
fees if the aggregate of all Acquisition Fees and Loan
Origination and Commitment Fees, including the additional
fees, exceeds 4% of the Gross Proceeds of the offering. To
the extent that borrowers and prospective borrowers pay Loan
Origination and Commitment Fees to the Advisor or such
Affiliates, the effect will be to increase the aggregate cost
to borrowers of the combined interest, fees and other charges
payable on Mortgage Loans made by the Partnership. To the
extent the payment of such fees reduces the fixed interest
rates or additional interest based on cash flow, sales
proceeds or other amounts which borrowers would otherwise be
willing to pay on a Mortgage Loan, such fees (although paid by
the borrowers) may be borne economically by the Partnership.
(5) It is presently anticipated that properties securing Mortgage
Loans made by the Partnership will be managed by unaffiliated
management firms. Neither USAA, the General Partner, the
Advisor, nor any Affiliate of any of them is currently engaged
in providing property management services to unrelated
parties. However, USAA, the General Partner, the Advisor, or
Affiliates, may in the future enter the property management
business. If that were to occur the services of such
affiliated management company would likely be used by the
General Partner to manage its properties and might also be
used by a borrower under a Mortgage Loan to manage the
property securing such loan. However, if such an affiliate
management company if formed and its services used by the
General Partner, the Advisor or a borrower, its compensation
for such services will be limited to the lesser of the
competitive fee for similar services in the same geographic
area or (i) 6% of gross revenues from each industrial and
commercial property if leasing and related services are
performed; (ii) 3% of gross revenues from each industrial and
commercial property if no leasing and related services are
performed; or (iii) 1% of gross revenues from each industrial
and commercial property leased on a long-term (10 years or
more) "net" basis (except for a one-time initial leasing fee
of 3% of the gross revenues on each lease payable over the
first five full years of the original term of the lease).
Whether an affiliated management company will be formed by
USAA, the General Partner, or the Advisor, and if formed
whether it would be used and the actual compensation payable
to it, if used, is not now determinable.
<PAGE>
(6) The Advisor is entitled to receive an annual Mortgage Loan
Servicing Fee equal to 1/4 of 1% of the maximum amount funded
or to be funded by the Partnership in Mortgage Loans, subject
to the limitation described below. The Mortgage Loan
Servicing Fee and the Property Management Fee will not exceed
in the aggregate, annually, an amount in excess of the lesser
of 4% of Gross Proceeds or 9% of the Partnership's Cash Flow.
Any excess Mortgage Loan Servicing Fee or Property Management
Fee will be retained by the Partnership or if previously paid
by the Partnership to the Advisor will be remitted back to the
Partnership by the Advisor.
(7) Gross Revenue from operations consists of all cash receipts
from operations of the Partnership's Properties in the
ordinary course of business (and such receipts of other
general partnerships or joint ventures in which the
Partnership has invested) without deduction for depreciation,
the Management Fee, or any other expenses. Cash Flow consists
of Gross Revenues less all Operating Cash Expenses, including
any adjustments to Reserves, other than the Management Fee.
Net Cash Flow consists generally of Cash Flow less the
Management Fee. (See "Glossary").
<PAGE>
TAXABLE INCOME AND TAX LOSSES AND CASH DISTRIBUTIONS
DISTRIBUTIONS OF NET CASH FLOW FROM OPERATIONS. Net Cash Flow
will be paid in the ratio of 1% to the General Partner and 99% to
the Limited Partners. Net Cash Flow is defined in the Partnership
Agreement to mean generally the Partnership's Cash flow, after
adjustments for Reserves, and after payment of all Operating Cash
Expenses including the Management Fee payable to the Advisor.
Thus, the Management Fee payable to the Advisor will reduce the
amount of cash available for distribution to the Partners in any
year. There can be no assurance that there will be any cash return
to the Limited Partners.
The Partnership intends to make distributions of Net Cash Flow
to the Limited Partners on a quarterly basis. Cash distributions
may be made following the end of the first fiscal quarter in which
the Partnership has Net Cash Flow. Distributions will be made to
the persons recognized as Limited Partners on the last day of such
fiscal quarter in proportion to the number of Units held by them.
To the extent feasible, the quarterly distributions will be equal
in amount for the first three quarters of each fiscal year, based
upon the General Partner's estimate of Net Cash Flow which will be
available for the full year. Distributions of cash may be from
funds included in Reserves to the extent Reserves are not needed
for operations.
The share of Net Cash Flow payable to the General Partner, in
relation to the share of Net Cash Flow payable to the Limited
Partners, is disproportionate to the Partner's relative cash
contributions of capital to the Partnership.
DISTRIBUTIONS OF RESIDUAL PROCEEDS. Residual Proceeds, if
any, will be paid: (i) 100% first to the Limited Partners until the
Limited Partners have received an amount which, when added to all
prior distributions of Residual Proceeds and Cash from Reserves
theretofore received equals 100% of their Adjusted Capital
Contributions plus an amount which when added to all prior
distributions from all sources to Limited Partners equals a 9%
cumulative but not compounded annual return on the Limited
Partners' Adjusted Capital Contributions; and (ii) second, to all
Partners in an amount equal to their respective positive Capital
Account balances to the extent such balances, if any, exceed the
amounts provided for in the preceding clause (i). Thereafter,
subject to the payment of real estate brokerage commissions to the
Advisor equal to the lesser of 1% of Selling Prices of all
properties sold or 50% of the Competitive Brokerage Commissions on
such properties, any remaining Residual Proceeds will be
distributed 90% to the Limited Partners and 10% to the General
Partner. The Partnership will be obligated to pay to the Advisor,
out of subsequent distributions of Residual Proceeds, all or any
portion of any unpaid real estate brokerage commissions to the
extent that distributions of prior Residual Proceeds are
insufficient to pay them in full. Each Limited Partner's
cumulative annual cash return of 9% will be calculated commencing
as of the end of the calendar quarter in which the Limited Partner
made his Capital Contribution.
<PAGE>
Until all properties are liquidated and a final distribution
is made of Residual Proceeds, all distributions of Net Cash Flow
and Residual Proceeds throughout the life of the Partnership will
be taken into consideration for purposes of determining whether
Limited Partners have received a cumulative cash return of 9% based
on their Adjusted Capital Contributions. Any distribution of
Residual Proceeds made in order to satisfy such 9% cumulative
return requirement, to the extent it may turn out to be excessive
on the basis of the Partnership's final accounting, will be treated
as a partial return of Limited Partners' Capital Contributions.
However, the amount returnable as Limited Partners' Capital
Contributions will not be reduced to the extent that prior
distributions of Net Cash Flow should exceed such 9% cumulative
return.
It should be noted that the Limited Partners' preferential
right to a return of their Capital Contributions will not be
affected by any reduction required to be made in the basis of their
Units for tax purposes. (See "Income Tax Consequences - Tax Basis
for the Units".)
The share of Residual Proceeds payable to the General Partner,
in relation to the share of Residual Proceeds payable to the
Limited Partners, is disproportionate to the Partners' relative
cash contributions of capital to the Partnership.
If Residual Proceeds are distributed, the date on which any
assignment of Units was made will determine to whom the proceeds
will be paid. (See "Taxable Income and Tax Losses" below.)
TAXABLE INCOME AND TAX LOSSES. The Partnership's Taxable
Income and Tax Losses (which are defined in the Partnership
Agreement to mean income and loss as determined for Federal income
tax purposes) as well as any tax-exempt income will be allocated,
with respect to operations for each taxable year, 99% to the
Limited Partners and 1% to the General Partner. These allocations
are in proportion to the shares of Net Cash Flow to which the
General Partner and Limited Partners are entitled with respect to
each taxable year (although the amount of Net Cash Flow available
in each year may be different from the amount of Taxable Income and
Tax Losses so allocated).
Taxable Income from a sale or refinancing or mortgage
repayment will be allocated among the Partners in proportion to the
amounts of Residual Proceeds to which they are entitled, after
allocating such Taxable Income to bring all Partners' negative
Capital Accounts to zero. Tax Losses from a sale or refinancing,
mortgage or foreclosure sale will be allocated 99% to the Limited
Partners and 1% to the General Partner, after allocating such Tax
Losses to bring all Partners' positive Capital Accounts to zero.
However, in no event will the General Partner be allocated less
than 1% of Taxable Income or Tax Loss from a sale or refinancing,
mortgage foreclosure or sale.
<PAGE>
Taxable Income, tax-exempt income and Tax Losses with respect
to the period after the first admission of investors as Limited
Partners and prior to the termination of the offering will be
apportioned among Limited Partners based upon a weighted average
which takes account of the number of days that each Limited Partner
was admitted as a Limited Partner. After all Limited Partners have
been admitted Taxable Income and Tax Losses will be apportioned
among Limited Partners in the ratio of the number of the Units
owned by each of them on the last day of each calendar quarter to
the total number of Units. Such Taxable Income would include any
amount taxable as ordinary income because of "recapture" gain, as
well as any capital gain.
Taxable Income or Tax Losses from current operations for any
year will be allocated between a transferor and transferee based
upon the number of quarterly periods that each was recognized as
the Holder of a Unit, without regard to whether Partnership
operations during particular quarterly periods of such year
produced profits or losses or cash distributions. Residual
Proceeds, if any, arising from the sale or refinancing of a
property or mortgage repayment, foreclosure or sale will be
distributed, and all related Taxable Income or Tax Losses will be
allocated, to the persons recognized as Holders of the Units on the
date on which the particular event occurred. For this purpose
transfers will be recognized as of the date specified by the
transferor and the transferee in the instrument of assignment or,
if no date is specified, the date of the last acknowledgment of
such instrument.
The share of Taxable Income and Tax Losses allocable to the
General Partner, in relation to the share of Taxable Income and Tax
Losses allocable to the Limited Partners, is disproportionate based
upon their Capital Contributions to the Partnership.
PARTNERSHIP ACCOUNTING. In order to carry out provisions of
the Partnership Agreement giving Limited Partners the right to a
cumulative return of their original Capital Contributions before
any Residual Proceeds are distributed to the General Partner,
separate records will be kept by the Partnership showing, for each
partner, his original Capital Contribution and his Adjusted Capital
Contribution. The Adjusted Capital Contribution of each Partner
will basically represent his original Capital Contribution reduced
by the cumulative amount of all cash distributions made to him of
Residual Proceeds. (Adjusted Capital Contributions will not be
reduced by reason of any distributions of Net Cash Flow and will
bear no relation to tax basis for the Units.)
<PAGE>
In addition, in order to give effect to the provisions of the
Partnership Agreement governing the treatment of Residual Proceeds,
as summarized above, separate records will also be kept showing a
Capital Account for each Partner. Initially, the Capital Account
of each partner will be the amount of his original Capital
Contribution. The Capital Account of each Partner will be reduced
to the extent of Tax Losses and other deductions allocated and Net
Cash Flow distributed to such Partner, but increased to the extent
of Taxable Income and any tax-exempt income allocated to each
Partner. Reductions of a Limited Partner's Capital Account in this
manner need not affect his preferential right to a return of his
Capital Contribution out of Residual Proceeds.
The Partnership will apply to the Service for permission to
use a fiscal year beginning October 1 and ending on September 30 of
each year. If the Service does not authorize the Partnership to
use such a fiscal year, the Partnership shall use a calendar year
as its fiscal year.
