UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
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 0-16171
USAA Income Properties IV Limited Partnership
(Exact name of registrant as specified in its charter)
Delaware 74-2449334
(State of Organization) (I.R.S. Employer 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 ]
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 June 8,
1987, 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
Interests 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, Consolidated Financial Statement Schedule and
Reports on Form 8-K
Signatures
Index to Exhibits
<PAGE>
PART I
Item 1. Business
USAA Income Properties IV Limited Partnership (the
"Partnership") is a limited partnership formed February 5, 1987,
under the Uniform Limited Partnership Act of the State of Delaware
to invest in a diversified portfolio of income-producing real
properties such as shopping centers, office buildings, apartments,
industrial buildings and other similar income-producing real
property. The Partnership has three principal business objectives:
(i) to preserve and protect the Partnership's capital (ii) to
obtain long-term appreciation in the value of its properties, and
(iii) to provide partially "tax-sheltered" distributions of cash
from operations. Defined terms used herein shall have the meanings
as set forth under the caption "Glossary" contained at pages 87-89
of the Prospectus, dated June 8, 1987, filed pursuant to Rule
424(b), attached as Exhibit 99.a and incorporated herein by
reference.
The Partnership Agreement authorized the issuance of up to
160,000 Limited Partnership Interests at a price of $500 each. The
Partnership sold $30,247,500 in Limited Partnership Interests
(60,495 Interests at $500 per Interest) from the commencement of
the offering of Interests on or about July 1, 1987, through the
completion of the offering on February 29, 1988. Limited Partners
are not required to make any additional capital contributions.
Proceeds available to the Partnership for investment in
properties were used to acquire the following properties in fiscal
year 1987: Linear Technology Corporate Headquarters, Eastman Kodak
Building, and 1881 Pine Street (Century Electric Office Building).
During 1988, the Partnership acquired a 55.8% joint venture
interest in USAA Chelmsford Associates Joint Venture which owns the
Apollo Computer Research and Development Headquarters Building.
See "Item 2 Properties".
Competitive conditions for the Partnership's properties in
1995 were as follows:
The Linear Technology Building, located in Milpitas, Santa
Clara County, California, is located three miles north of the San
Jose Municipal Airport and eight miles from Stanford University.
At December 31, 1995, the building was 100% leased by Linear
Technology Corporation as its corporate headquarters under a lease
which expires in 2000. During 1995, the lease with Linear
Technology was renewed for an additional five years. The tenant
renewed at a monthly rate of $.75 per square foot for the 42,130
square foot building, down from the previous monthly rate of $1.15
per square foot. This new rate reflects the current market
conditions in the area surrounding the property. An allowance for
tenant improvements has been provided at a total of approximately
$168,500 to be paid out of the working capital reserve. As of
December 31, 1995, none of the allowance had been expended. Linear
<PAGE>
Technology provided approximately $459,000 of annual rental income
to the Partnership in 1995 and $561,000 during 1994 and 1993, which
represented approximately 11% of total Partnership rental income
for 1995, 1994 and 1993.
The Linear Technology Building is located in the Milpitas
submarket of the Silicon Valley. This submarket had approximately
300,000 square feet of available research and development (R & D)
space as of December 31, 1995, with a vacancy factor of 4% compared
to a 13% vacancy factor as of December 31, 1994. The submarket had
net absorption of approximately 635,000 square feet in 1995.
The Eastman Kodak Building is located in Sorrento Valley, San
Diego, California near the intersection of Interstates 5 and 805.
At December 31, 1995, the building was 100% leased, with Kodak
occupying 34,600 square feet and Invitrogen Corporation occupying
the remaining 23,147 square feet. Kodak's lease expires in
February 1998. The Invitrogen lease expires in April 1996 and the
tenant is in need of additional space. This need for additional
space can not be accommodated at the Kodak property; therefore,
Invitrogen plans to construct and occupy their own building.
Invitrogen is seeking a possible short-term extension until the
construction of their new building is complete. Kodak has made no
commitment to take Invitrogen's space.
The Kodak Building is located in the Sorrento Valley R & D
submarket. The vacancy rate in the submarket decreased to
approximately 9.5% as of the end of 1995 compared to 17% in 1994.
Total inventory in the Sorrento Valley R & D submarket was
approximately 1.3 million square feet with 125,000 square feet
available at the end of 1995.
The Century Electric Office Building is located in St. Louis,
Missouri near Interstate 44, the Gateway Arch, and Union Station.
MagneTek, the single tenant at Century Electric, vacated the
property at the expiration of its lease in May 1995. A broker was
hired in 1994 to lease the property either as a single-tenant or
multi-tenant building. The property has undergone some
improvements to prepare the building for new tenants and will be
marketed as 1881 Pine Street. In December, a marketing center was
completed at the property to aid in showing to prospective tenants.
MagneTek provided approximately $537,000 of rental income to the
Partnership during 1995, $1,306,000 during 1994 and $1,305,000
during 1993. This represented approximately 13% of total
Partnership rental income for 1995, 26% for 1994 and 25% for 1993.
At the end of 1995, the parking lot improvements at 1881
Pine Street were approximately 98% complete and are anticipated to
be complete in March 1996 at a total cost of approximately $172,000,
down from the anticipated cost of $185,000. Improvements included
demolition of an old fence, and installation of new lights, new asphalt,
striping, wrought iron fencing, landscaping and parking lot access
gates with a card entry reader system. The cost of improvements
will be funded from the working capital reserve.
<PAGE>
The 1881 Pine Street property is located in the Downtown St.
Louis submarket. The occupancy rate as of the end 1995 in this
submarket was approximately 82% as compared to approximately 83% as
of 1994. The occupancy rate in the overall St. Louis office market
remained stable at approximately 88%.
USAA Chelmsford Associates Joint Venture, the joint venture
in which the Partnership holds a 55.8% interest, owns and operates
the Apollo Computer Research and Development Headquarters Building
which is located in Chelmsford, Massachusetts, a suburb of Boston.
The property is an office/R & D building and is 100% leased to
Hewlett-Packard Company, successor in interest to Apollo Computer,
Inc. During 1995, negotiations with Hewlett-Packard Company
resulted in the renewal of their lease for an additional 41 months.
The new monthly rental rate of $.57 per square foot for the 291,424
square foot building will begin January 1997. This rate is lower
than the current rate of approximately $.76 per square foot and
reflects the current market conditions in the area surrounding the
property. An allowance for tenant improvements was provided at a
total of approximately $565,000 to be paid from the working capital
reserve. As of December 31, 1995, approximately $108,000 of the
allowance has been expended. This tenant provided approximately
$2,759,000 of annual rental income to the Partnership in 1995,
$2,761,000 in 1994 and $2,763,000 in 1993 which represented
approximately 65% of total Partnership rental income for 1995 and
54% for 1994 and 1993.
The Apollo Computer Building is located within the 495
Markets/Metrowest submarket of the Greater Boston market. This
building is configured in a way that allows it to compete as
office or R & D. Total inventory in the submarket was
approximately 11.3 million square feet of office space with an
occupancy rate of approximately 89% as of December 31, 1995
compared to an occupancy rate of approximately 88% as of the end of
1994. Total inventory of R & D space was approximately 2.6 million
square feet as of the end of 1995 with an occupancy of
approximately 88%. There is no R & D construction underway.
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
"Adviser"), a wholly-owned subsidiary of USAA Capital Corporation,
which is a wholly-owned subsidiary of United Services Automobile
Association ("USAA"). The Adviser is responsible for managing the
day-to-day operations of the Partnership.
The General Partner (the "General Partner") of the
Partnership is USAA Properties IV, Inc., a Texas corporation and a
subsidiary of the Adviser. The General Partner has the general
responsibility for management of the Partnership's business and
oversees the activities of the Adviser.
<PAGE>
Item 2. Properties
The Partnership owns, either directly or through a joint
venture, the properties described below as of December 31, 1995:
Location Description of Property
Milpitas, California Linear Technology Corporate
Headquarters: An office building
containing approximately 42,130 net
leasable square feet situated on 2.66
acres. At December 31, 1995, the
property was 100% occupied and
average monthly cash rental was
approximately $39,000. There is no
debt on this property. The
Partnership has 100% fee-simple
ownership.
San Diego, California Eastman Kodak Building: An office
building containing approximately
57,747 net leasable square feet
situated on 4.64 acres. At December
31, 1995, the property was 100%
occupied and average monthly cash
rental was $58,000. The mortgage
payable on this property is
$1,192,098. The Partnership has 100%
fee-simple ownership.
St. Louis, Missouri 1881 Pine Street: An office building
containing approximately 106,340 net
leasable square feet situated on
approximately 1 acre. At December
31, 1995, the property was not
leased. There is no debt on this
property. The Partnership has 100%
fee-simple ownership.
Chelmsford, Massachusetts Apollo Computer Research and
Development Headquarters Building:
An office/research and development
facility containing approximately
291,424 net leasable square feet
situated on 26.651 acres. At
December 31, 1995, the property was
100% leased and average monthly cash
rental was $237,000. The mortgage
payable on this property is
$15,446,788. This building is 100%
owned in fee-simple by USAA
Chelmsford Associates Joint Venture.
The Partnership holds a 55.8%
interest in this joint venture.
See notes 3, 4, 5, 6, 7, and 10 of Notes to Consolidated Financial
Statements in Item 8, for further discussion relating to the
properties and encumbrances thereon.
<PAGE>
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.
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 the solicitation of proxies or otherwise.
PART II
Item 5. Market for the Registrant's Limited Partnership Interests
and Related Security Holder Matters
There is no established public trading market for the
Interests, and it is not anticipated that a public market will
develop. Upon request, Real Estate Limited Partnership Investor
Services, a department in the USAA Real Estate Company, may assist
a Limited Partner desiring to transfer his Interests. The limited
market for the Interests may adversely affect the value of the
Interests. The purchase price for the Interests upon resale and
all other terms of a resale transaction are subject to negotiation
between the buyer and the seller.
As of December 31, 1995, there were 2,989 Limited Partners
of the Partnership, owning an aggregate of 60,495 Interests.
During the year ended December 31, 1995, quarterly
distributions totaling $907,425 and $9,166 were distributed to the
Limited Partners and General Partner, respectively, for a total of
$916,591 in cash distributions. These distributions represented a
return of capital for both the Limited Partners and General
Partner.
During the year ended December 31, 1994, quarterly
distributions totaling $907,426 and $9,166 were distributed to the
Limited Partners and General Partner, respectively, for a total of
$916,592 in cash distributions. The return of capital portion of
1994 distributions was $355,803 and $3,594 for the Limited Partners
and General Partner, respectively.
Future cash distributions to Limited Partners are
anticipated. It is anticipated that distributions will be reduced
due to significant decreases in future cash flows as a result of
lease expirations, renewals at lower rental rates which reflect
market conditions and substantial re-leasing costs.
<PAGE>
<TABLE>
Item 6. Selected Financial Data
USAA INCOME PROPERTIES IV LIMITED PARTNERSHIP
SELECTED FINANCIAL DATA
Years Ended December 31, 1995, 1994, 1993, 1992 and 1991
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Rental Income 4,276,734 5,119,505 5,126,096 5,261,380 5,264,946
Interest Income 144,048 73,388 35,848 43,819 84,623
Net Income(Loss) (267,510) 557,195 622,013 731,669 851,769
Net Income(Loss) per Limited
Partnership Interest (1) (4.38) 9.12 10.18 11.97 13.94
Taxable Income 122,089 1,053,107 920,808 979,092 910,196
Taxable Income per
Limited Partnerhip
Interest (1) 2.00 17.23 15.07 16.02 14.90
Cash Distributions 916,591 916,592 1,191,567 1,649,864 1,967,616
Cash Distributions per
Limited Partnership
Interest (2) 15.00 15.00 19.50 27.00 32.20
Total Assets at Period End 48,773,131 50,430,042 51,237,941 52,386,006 53,725,616
Total Mortgages and Note
Payable at Period End 22,638,886 22,839,334 23,022,114 23,188,785 23,340,750
(1) Based on limited partnership interests issued at period end and net
income(loss)/taxable income allocated to Limited Partners.
(2) Based on limited partnership interests issued at each quarter end and
cash distributions allocated to Limited Partners.
The above selected financial data should be read in conjunction with the consolidated
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, 1995, the Partnership had cash of $61,643 and
temporary investments of $2,217,339. Included in these amounts
was the working capital reserve and funds held for payment of
current obligations of the Partnership. Accounts receivable
consisted of amounts due from tenants. Deferred charges and
other assets consisted primarily of deferred rent resulting from
recognition of income as required by generally accepted
accounting principles. Accounts payable consisted of amounts due
to USAA Real Estate Company for management fees and reimbursable
expenses and amounts due to third parties for expenses incurred
for operations. Other liabilities consisted of security deposits
and prepaid rent.
The original lease with Linear Technology, the single tenant at
the Linear Technology Building in Milpitas, California, expired
in June 1995. During the year, negotiations with Linear resulted
in a five year renewal. The tenant renewed at a monthly rental
rate of $.75 per square foot for the 42,130 square foot building,
down from the previous monthly rate of $1.15 per square foot.
This new rate reflects the current market conditions in the area
surrounding the property. An allowance for tenant improvements
has been provided for a total of approximately $168,500 to be
paid out of the working capital reserve. As of December 31,
1995, none of the allowance had been expended.
During May 1995, MagneTek vacated 1881 Pine Street (formerly
known as the Century Electric Building) in St. Louis, Missouri.
This property has undergone some improvements to prepare the
building for new tenants. In December, a marketing center was
completed at the property to show prospective tenants. A broker
was hired in 1994 to lease the property as either a single-tenant
or multi-tenant building. Rental rates for new leases will be
lower than the previous rate reflecting market conditions in the
area surrounding the property.
At end of 1995, the parking lot improvements at 1881 Pine Street
were approximately 98% complete and are anticipated to be
complete in March 1996 at a total cost of approximately $172,000,
down from the anticipated cost of $185,000. Improvements included
demolition of an old fence, and installation of new lights, new
asphalt, striping, wrought iron fencing, landscaping, and parking
lot access gates with a card entry reader system. The cost of
improvements will be funded from the working capital reserve.
Although the lease with Hewlett-Packard Company, the single
tenant at the Apollo Building in Chelmsford, Massachusetts, did
not expire until 1996, negotiations during 1995 resulted in a
renewal. The tenant has agreed to renew for an additional 41
months at a monthly rate of $.57 per square foot for the 291,424
square foot building. This rate is lower than the current rate
<PAGE>
of approximately $.76 per square foot and reflects the current
market conditions in the area surrounding the property. This new
lease expires in May 2000. An allowance for tenant improvements
was provided at a total of approximately $565,000 to be paid from
the working capital reserve. As of December 31, 1995,
approximately $108,000 of the allowance had been expended.
Total cash distributions in 1995 to Partners remained consistent
with total cash distributions to Partners in 1994. The single
tenant lease at 1881 Pine Street expired in May 1995 and
substantial expenditures for tenant improvements are anticipated
beginning in 1996 as new leases are signed. Linear renewed its
lease effective June 1995 for an additional five years with
approximately $168,500 in tenant improvement costs and a rental
rate decrease to reflect market conditions. Apollo renewed its
lease effective January 1997 for an additional 41 months at a
reduced rental rate to reflect current market conditions and with
$565,000 in tenant improvement costs. In addition, the
Invitrogen lease expires in 1996. Due to significant decreases
in 1996 cash flow, reductions in distributions are anticipated
for 1996.
Future liquidity is expected to result from cash generated from
the operations of the properties, interest on temporary
investments and ultimately through the sale of the properties.
Results of Operations
For the three-years ended December 31, 1995, income was generated
from rental income from the income-producing real estate
properties and from interest income earned on the funds in
temporary investments.
Expenses incurred during the same periods were associated with
the operation of the Partnership's properties, interest on the
mortgages and note payable, and various other costs required for
administration of the Partnership.
During 1995, 1994 and 1993, two of the Partnership's properties
were single-tenant properties with absolute triple net leases.
Under an absolute triple net lease, the lessee is required to
make all payments for expenses related to the use and occupation
of the leased premises, including real estate taxes and
assessments, property and liability insurance, repairs and
maintenance, utilities and other operating costs associated with
the property. Accordingly, the Partnership received rental
income and the lessee absorbed all such expenses on these
properties.
Rental income decreased for 1995 as compared to 1994 primarily
due to the single tenant at 1881 Pine Street vacating the
property in May 1995 upon expiration of the lease. Also
contributing to the decrease in rental income was the rent
reduction at Linear. The tenant at Linear renewed at a monthly
<PAGE>
rate of $.75 per square foot for the 42,130 square foot building,
which is lower than the previous monthly rate of $1.15 per square
foot and reflects the current market conditions in the area
surrounding the property.
Depreciation increased for 1995 as compared to 1994 due to
improvements at 1881 Pine Street and Kodak. The increase in
depreciation in 1994 as compared to 1993 was attributable to the
tenant improvements for the Kodak lease placed in service January
1994. Other direct expenses were higher for 1995 as compared to
1994 as a result of sidewalk repairs, property tax payments and
demolition costs at the 1881 Pine Street property to enhance the
appearance of the property for showing to prospective tenants.
Also contributing to the increase was parking lot repairs at the
Apollo Building which was part of the tenant improvement
allowance. Other direct expenses for 1994 reflected an increase
as compared to 1993 due to an increase in marketing expenses and
an evaluation of the heating and air conditioning system at 1881
Pine Street, and an increase in property earthquake insurance at
Kodak and Linear.
Higher interest rates and an increase in cash reserves accounted
for the increase in interest income for 1995 and 1994 as compared
to 1993.
General and administrative expenses decreased for 1995 as
compared to 1994 due to a reduction in charges for preparation of
federal and state tax returns, a reduction in a partnership
earnings tax paid to the City of St. Louis and a decrease in
printing charges. The increase in general and administrative
expenses for 1994 as compared to 1993 was attributable to a
partnership earnings tax paid to the City of St. Louis.
The management fee payable to the adviser is based on cash flow
from operations of the Partnership adjusted for cash reserves and
fluctuated accordingly.
Interest expense decreased in 1995 and 1994 as compared to 1993
due to principal balance reductions.
Minority interest in joint venture earnings decreased for 1995 as
compared to 1994 due to a decrease in net income of the joint
venture property as a result of parking lot repairs offset
somewhat by a decrease in interest expense. Minority interest
in joint venture earnings increased for 1994 as compared to 1993
as a result of a decrease in interest expense.
<PAGE>
Inflation
An increase in inflation could affect the Partnership's
investments through increases in various administrative costs of
Partnership operation. The adverse effect inflation may have
would be offset to some extent by increases in rental rates
charged tenants at the Partnership's properties.
<PAGE>
<TABLE>
Item 8. Financial Statements and Supplementary Data
USAA INCOME PROPERTIES IV LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
<CAPTION>
1995 1994
<S> <C> <C>
ASSETS
Rental properties, net (notes 3, 4, and 7) $ 46,218,351 47,806,604
Temporary investments, at cost which approximates
market value:
USAA Mutual Fund, Inc. (note 8) -- 13,920
Money market fund 2,217,339 2,180,318
2,217,339 2,194,238
Cash 61,643 14,506
Cash and cash equivalents 2,278,982 2,208,744
Accounts receivable 81,956 63,505
Deferred charges and other assets 193,842 351,189
$ 48,773,131 50,430,042
LIABILITIES AND PARTNERS' EQUITY
Mortgages payable (note 7) $ 16,638,886 16,839,334
Note payable to affiliate (notes 4, 7, and 8) 6,000,000 6,000,000
Accounts payable, including amounts due
to affiliates of $44,323 and $34,886 57,801 59,971
Other liabilities 251,595 250,852
Total liabilities 22,948,282 23,150,157
Minority interest in joint venture (note 4) 4,310,989 4,581,924
Partners' equity:
General Partner:
Capital contribution 1,000 1,000
Cumulative net income 52,678 55,353
Cumulative distributions (121,876) (112,710)
(68,198) (56,357)
Limited Partners (60,495 interests):
Capital contributions, net of offering costs 28,432,650 28,432,650
Cumulative net income 5,215,136 5,479,971
Cumulative distributions (12,065,728) (11,158,303)
21,582,058 22,754,318
Total Partners' equity 21,513,860 22,697,961
Commitment (note 12)
$ 48,773,131 50,430,042
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
USAA INCOME PROPERTIES IV LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1995, 1994 and 1993
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
INCOME
Rental income $ 4,276,734 5,119,505 5,126,096
Less direct expenses, including
depreciation of $1,873,494,
$1,866,275 and $1,784,167 2,094,869 1,977,988 1,859,924
Net operating income (note 6) 2,181,865 3,141,517 3,266,172
Interest income (note 8) 144,048 73,388 35,848
Total income 2,325,913 3,214,905 3,302,020
EXPENSES
General and administrative (note 8) 197,963 233,198 207,904
Management fee (note 8) 90,376 91,449 129,404
Interest (notes 7 and 8) 2,134,420 2,152,088 2,168,197
Minority interest in joint venture
earnings (note 4) 170,664 180,975 174,502
Total expenses 2,593,423 2,657,710 2,680,007
Net income (loss) $ (267,510) 557,195 622,013
Net income (loss) per limited partnership interest $ (4.38) 9.12 10.18
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
USAA INCOME PROPERTIES IV LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY
Years Ended December 31, 1995, 1994 and 1993
<CAPTION>
General Limited
Partner Partners Total
<S> <C> <C> <C>
Balances at December 31, 1992 $ (47,068) 23,673,980 23,626,912
Net income 6,220 615,793 622,013
Distributions (11,915) (1,179,652) (1,191,567)
Balances at December 31, 1993 (52,763) 23,110,121 23,057,358
Net income 5,572 551,623 557,195
Distributions (9,166) (907,426) (916,592)
Balances at December 31, 1994 (56,357) 22,754,318 22,697,961
Net loss (2,675) (264,835) (267,510)
Distributions (9,166) (907,425) (916,591)
Balances at December 31, 1995 $ (68,198) 21,582,058 21,513,860
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
USAA INCOME PROPERTIES IV LIMITED PARTNERSHIP
CONSOLIDATED 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 income (loss) $ (267,510) 557,195 622,013
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 1,873,494 1,866,275 1,784,167
Amortization 24,108 24,108 26,880
Decrease (increase) in accounts receivable (18,451) 12,959 33,942
Decrease in deferred charges
and other assets 133,239 144,745 72,009
Increase (decrease) in accounts payable,
accrued expenses and other liabilities (1,427) 127,383 (12,262)
Minority interest in joint venture earnings 170,664 180,975 174,502
Cash provided by operating activities 1,914,117 2,913,640 2,701,251
Cash flows used in investing activities -
Additions to rental properties (285,241) (39,306) (741,896)
Cash flows from financing activities:
Repayment of mortgages payable (200,448) (182,780) (166,671)
Distributions to co-venturer (441,599) (574,080) (574,080)
Distributions to partners (916,591) (916,592) (1,191,567)
Cash used in financing activities (1,558,638) (1,673,452) (1,932,318)
Net increase in cash and cash equivalents 70,238 1,200,882 27,037
Cash and cash equivalents at beginning
of year 2,208,744 1,007,862 980,825
Cash and cash equivalents at end of year $ 2,278,982 2,208,744 1,007,862
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
USAA INCOME PROPERTIES IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1995, 1994 and 1993
1. Organization, Summary of Significant Accounting Policies and
Other
USAA Income Properties IV Limited Partnership is engaged
solely in the business of real estate investment; therefore,
presentation of information about industry segments is not
applicable.
The Partnership owns office buildings in Milpitas,
California; San Diego, California; St. Louis, Missouri and a
joint venture interest in a research and development
property in Chelmsford, Massachusetts. The Partnership's
revenue is subject to changes in the economic environments of
these areas.
The General Partner, USAA Properties IV, Inc., is a wholly-
owned subsidiary of USAA Real Estate Company (Realco), which
is a wholly-owned subsidiary of USAA Capital Corporation,
which is a wholly-owned subsidiary of United Services
Automobile Association (USAA).
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.
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. Based
on the provisions of Statement 121, the Partnership's long-
lived assets, real estate and improvements, are not
considered impaired. The adoption of this Statement had no
financial statement impact.
Depreciation is provided over the estimated useful lives of
the properties using the straight-line method. The estimated
lives of the buildings and improvements is 30 years (31.5 -
39 years for Federal income tax purposes).
<PAGE>
Rental income is recognized under the operating method,
whereby aggregate rentals are reported on a straight-line
basis as income over the life of the lease. Rental income
recognized was $142,781, $148,920 and $99,643 less than the
amount due per the lease agreements for the years ended
December 31, 1995, 1994 and 1993, 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 purposes of the Consolidated 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.
The consolidated financial statements include the accounts of
the Partnership and its majority-owned joint venture. All
significant intercompany accounts have been eliminated in
consolidation.
For financial reporting purposes, net income is allocated 1%
to the General Partner and 99% to the Limited Partners. Net
income per limited partnership interest is based upon the
limited partnership interests outstanding at the end of the
period and net income allocated to the Limited Partners.
Cash distributions per limited partnership interest were
$15.00 for 1995 and 1994 and $19.50 for 1993, and were based
on the limited partnership interests outstanding at each
quarter end and the cash distributions allocated to Limited
Partners.
2. Partnership Agreement
Pursuant to the terms of the Partnership Agreement, Net Cash
from Operations shall be allocated and paid 1% to the General
Partner and 99% to the Limited Partners. Any Net Cash from
Operations received by a Limited Partner shall count toward
his 6% cumulative Preferred Return, as defined in the
Partnership Agreement. Net Proceeds from Sales or
Refinancings, shall be allocated and paid 1% to the General
Partner and 99% to the Limited Partners until the Limited
Partners have been returned their Original Invested Capital
from Net Proceeds from Sales or Refinancings, plus their
Preferred Return. Second, Net Proceeds from Sales or
Refinancings shall be allocated and paid to the Adviser in
payment of any unpaid Subordinated Disposition Fee. Third,
Net Proceeds from Sales or Refinancings shall be allocated
and paid 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 gain or net 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:
1995 1994
Buildings and improvements $ 50,831,721 50,546,480
Land 9,020,016 9,020,016
59,851,737 59,566,496
Less accumulated depreciation (13,633,386) (11,759,892)
$ 46,218,351 47,806,604
4. Investment in Joint Venture
On May 31, 1988, the Partnership entered into the USAA
Chelmsford Associates Joint Venture with USAA Real Estate
Company for the ownership and operation of the Apollo
Computer Research and Development Headquarters Building. The
Partnership contributed $9,000,000 for its 55.8% joint
venture interest. The contribution consisted of $3,000,000
in remaining offering proceeds and $6,000,000 in proceeds
from a note payable to USAA Real Estate Company (note 7).
<PAGE>
Summary financial information for the joint venture as of
December 31, 1995 and 1994 and for the years ended December
31, 1995, 1994 and 1993 follows:
ASSETS
1995 1994
Cash $ 346,262 240,404
Property, net 24,957,807 25,783,464
Account receivable 74,356 54,507
Deferred rent and other assets 64,102 125,358
$25,442,527 26,203,733
LIABILITIES AND EQUITY
Liabilities:
Mortgage payable $15,446,788 15,592,159
Accounts payable 232,946 235,249
15,679,734 15,827,408
Equity:
USAA Income Properties IV
Limited Partnership 5,451,804 5,794,401
Co-venturer - affiliate 4,310,989 4,581,924
Total equity 9,762,793 10,376,325
$25,442,527 26,203,733
OPERATIONS
1995 1994 1993
Revenues $ 2,771,135 2,771,501 2,770,921
Operating expenses (63,018) (30,885) (32,723)
Other expenses (8,967) (5,484) (6,134)
Depreciation (895,877) (895,877) (895,878)
Interest expense (1,416,805) (1,429,437) (1,440,971)
Net income $ 386,468 409,818 395,215
Equity in net income:
USAA Income Properties IV
Limited Partnership $ 215,804 228,843 220,713
Co-venturer - affiliate 170,664 180,975 174,502
$ 386,468 409,818 395,215
Cash distributions:
USAA Income Properties IV
Limited Partnership $ 558,401 725,920 725,920
Co-venturer - affiliate 441,599 574,080 574,080
$ 1,000,000 1,300,000 1,300,000
<PAGE>
5. Minimum Future Rentals
Operating leases with tenants have remaining terms from four
months 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
Consolidated Statements of Operations is recognized under the
operating method, whereby aggregate rentals are reported on a
straight-line basis as income over the life of the lease.
Approximate minimum future rentals are as follows:
1996 $ 3,598,000
1997 2,737,000
1998 2,439,000
1999 2,379,000
2000 1,023,000
Thereafter --
$12,176,000
6. Triple Net Leases
During 1995, 1994 and 1993, the Partnership had ownership
interests in two office buildings occupied by single tenants.
The lease agreements between the tenants and the Partnership
were absolute triple net lease arrangements whereby the lessee
is required to make all payments for expenses related to the use
and occupation of the leased premises including real estate
taxes and assessments, property and liability insurance, repairs
and maintenance, utilities and other operating costs associated
with the property. Accordingly, net operating income reflected
only rental income and excluded all expenses directly related
to the operations of the property as payments for such expenses
are made directly by the lessee.
<PAGE>
7. Mortgages and Note Payable
Mortgages payable at December 31:
1995 1994
9.625% first mortgage note,
payable in monthly install-
ments of $14,391, including
interest, due August 1, 2008;
secured by rental property
with a depreciated cost of
approximately $6,195,000. $ 1,192,098 1,247,175
9.125% first mortgage note,
due August 1, 2001, interest
only payable monthly for the
first five years; interest and
principal of $130,181 are
payable monthly for the
remaining term with a balloon
payment of $14,361,580; secured
by rental property with a
depreciated cost of approxi-
mately $25,354,000. 15,446,788 15,592,159
$ 16,638,886 16,839,334
On May 31, 1988, $6,000,000 of the total $9,000,000 Partnership
investment in USAA Chelmsford Associates Joint Venture was
borrowed from USAA Real Estate Company (note 4). The unsecured
demand note payable bears interest at 10%, payable monthly, with
a due date of September 1, 1997.
Aggregate maturities of mortgages and note payable for 1996
through 2000 are $219,803, $6,241,070, $264,374, $289,934 and
$317,946 respectively.
Cash payments for interest expense were $2,134,420, $2,152,088
and $2,168,197 for 1995, 1994 and 1993, respectively.
8. Transactions with Affiliates
USAA Real Estate Company (the Adviser) may receive property
acquisition fees of up to 5% of gross offering proceeds, real
estate brokerage commissions of up to 2% of the aggregate
selling prices of properties sold and management fees of 9% of
adjusted cash flow from operations.
A portion of the Partnership's working capital reserve and other
available funds were invested in USAA Mutual Fund, Inc. 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, provides
property management and leasing services for the properties and
may receive fees of up to 6% of property cash receipts for those
services.
<TABLE>
A summary of transactions with affiliates follows:
<CAPTION>
Reimbursement Interest Management Lease Interest
of Expenses (1) Income Fees Commissions Expense (2) Total
<S> <C> <C> <C> <C> <C> <C>
USAA Mutual
Fund, Inc.:
1995 $ -- (27) -- -- -- (27)
1994 -- (542) -- -- -- (542)
1993 -- (7,939) -- -- -- (7,939)
USAA Real Estate
Company:
1995 108,885 -- 90,376 -- 600,000 799,261
1994 110,947 -- 91,449 -- 600,000 802,396
1993 107,046 -- 129,404 -- 600,000 836,450
Quorum Real Estate
Services Corporation:
1995 36,559 -- 52,802 9,487 -- 98,848
1994 22,556 -- 63,118 8,865 -- 94,539
1993 13,818 -- 58,350 10,588 -- 82,756
(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.
(2) Represents interest expense incurred on a note payable (note 7).
</TABLE>
<PAGE>
9. Income Taxes
A reconciliation of financial statement net income (loss) to
taxable income follows:
1995 1994 1993
Net income (loss)-financial statement
basis $ (267,510) 557,195 622,013
Less:
Taxable income over financial
statement income - USAA
Chelmsford Associates 99,037 227,432 98,736
Increase in deferred rent 77,506 83,647 34,369
Plus:
Excess financial statement depreciation
over tax depreciation 233,836 230,903 169,546
Other reconciling items (20,780) (46,070) (3,856)
Taxable income $ 122,089 1,053,107 920,808
10. Major Customer Information
During 1995, the Partnership recorded approximately $2,759,000,
$537,000 and $459,000 of rental income from single-tenant leases
which represented approximately 65%, 13% and 11% of total rental
income, respectively.
During 1994, the Partnership recorded approximately $2,761,000,
$1,306,000 and $561,000 of rental income from single-tenant
leases which represented approximately 54%, 26% and 11% of total
rental income, respectively.
During 1993, the Partnership recorded approximately $2,763,000,
$1,305,000 and $561,000 of rental income from single-tenant
leases which represented approximately 54%, 25% and 11% of total
rental income, respectively.
11. Fair Value of Financial Instruments
The carrying value of cash and cash equivalents approximates
fair value due to the short maturity of these instruments.
The fair value of mortgages and note payable at December 31,
1995 and 1994 was $21,677,908 and $21,733,260, respectively, and
was estimated by discounting the future cash flows using
interest rates currently being offered for mortgage loans and
notes with similar characteristics and maturities.
<PAGE>
12. Commitment
During 1995, the Linear Technology lease was renewed for an
additional five years. The original lease expiration has been
extended from June 1995 to June 2000. The Partnership has
committed to funding approximately $168,500 for tenant
improvements to be paid out of the working capital reserve. As
of December 31, 1995, none of the allowance had been expended.
During 1995, the lease with Hewlett-Packard Company at the
Apollo Building was renewed for an additional 41 months. The
original lease expiration has been extended from December 1996
to May 2000. The Partnership has committed to funding
approximately $565,000 to be paid from the working capital
reserve. As of December 31, 1995, $108,000 of the allowance had
been expended.
<PAGE>
Independent Auditors' Report
The Partners
USAA Income Properties IV Limited Partnership:
We have audited the accompanying consolidated balance sheets of
USAA Income Properties IV Limited Partnership and majority-owned
joint venture as of December 31, 1995 and 1994, and the related
consolidated statements of operations, partners' equity, and cash
flows for each of the years in the three-year period ended December
31, 1995. These consolidated financial statements are the
responsibility of the Partnership's management. Our responsibility
is to express an opinion on these consolidated 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 consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of USAA Income Properties IV Limited Partnership and
majority-owned joint venture as of December 31, 1995 and 1994, and
the results of their operations and their cash flows for each of
the years in the three-year period ended December 31, 1995, in
conformity with generally accepted accounting principles.
/S/KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
San Antonio, Texas
January 29, 1996
<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 Properties
IV, Inc., a Texas corporation.
As of January 1, 1996, 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
John G. Meadows Assistant Vice President -
Southeast Real Estate Region
Stephen S. King Assistant Vice President -
Western Real Estate 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. All of the foregoing officers have served in
the capacities indicated since their election, with the exception
of Martha J. Barrow who was elected Vice President - Administration
<PAGE>
and Finance/Treasurer, Randal R. Seewald's promotion to Vice
President - Legal Counsel, Secretary and Director, S. Wayne
Peacock's promotion to Vice President - Portfolio Management all
effective February 18, 1995, and David M. Holmes who was named
Assistant Vice President - Capital Investments effective October
31, 1995.
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:
Edward B. Kelley, 55, 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; 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; a 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; 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 and a
member of Board of Trustees for the United Way of San Antonio and
Bexar County.
<PAGE>
T. Patrick Duncan, 46, 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 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 in the states of Texas and Arizona and holds a
Texas Real Estate Brokers License. He holds memberships in 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
Trusts and the Pension Real Estate Association. Mr. Duncan serves
as Vice Chairman of the Board of Directors of the Daughters of
Charity.
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., 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, Quorum
Real Estate Services Corporation 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 and the San Antonio Bar Association.
Martha J. Barrow, 48, 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.
<PAGE>
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 joining
USAA, she served 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. 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 and a Master of Business
Administration from St. Mary's University. She is active in the
promotion of activities with Northside Independent School District.
S. Wayne Peacock, 37, 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, 39, 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 and
Director 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 a 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
membership in the National Association of Real Estate Companies.
He serves as Chairman of the Board of Communities in Schools-San
Antonio, Inc.
<PAGE>
Susan T. Wallace, 41, is Assistant Vice President -
Acquisitions and Dispositions 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. She also serves as President of the Affordable Housing
Investors Council.
David M. Holmes, 35, 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. He 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 with 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 in the state of Texas.
He has served on the Board of Directors of Big Brothers and Sisters
of San Antonio and is a member of the Finance Committee of the San
Antonio Public Library.
John G. Meadows, 51, joined USAA Real Estate Company in
December 1984 as Executive Director of Real Estate Asset
Management. Currently he serves as Assistant Vice President of
Quorum Real Estate Services Corporation and Manager of Southeast
Region Property Management and Leasing, Assistant Vice President of
USAA Real Estate Company, USAA Real Estate Development Company,
USAA Properties Fund, Inc., USAA Investors I, Inc., USAA Investors
II, Inc., USAA Properties II, Inc., USAA Properties III, Inc., and
USAA Properties IV, Inc. All of the previously named companies are
affiliates of the General Partner. Prior to joining USAA, Mr.
Meadows was Assistant Vice President and Trust Officer of M Realty,
the commercial real estate division of M Bank (formerly known as
<PAGE>
Mercantile National Bank) Dallas, Texas. His responsibilities
included acquisitions, leasing management, and dispositions of two
open-ended co-mingled real estate investment funds, and leasing
management and disposition of all commercial properties held in
trust. He received a Bachelor of Science from Texas A&M in 1970
and a Masters Degree from Texas A&M in 1972 in Agricultural
Management. Mr. Meadows holds Real Estate Brokers licenses in
Texas and Florida.
Stephen S. King, 39, is Assistant Vice President - Western
Real Estate 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. Mr.
King is a member of the Institute of Real Estate Management (IREM),
the Building Owners and Managers Association (BOMA) and the
National Association of Realtors.
<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 caption "Management Compensation"
at pages 12-15 and "Income and Losses and Cash Distributions" at
pages 46-49 of the Prospectus, dated June 8, 1987, filed pursuant
to Rule 424(b). Copies of these pages are attached hereto as
Exhibit 99.b and incorporated herein by reference. For the year
ended December 31, 1995, the General Partner received cash
distributions of $9,166.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
(a) Security Ownership of Certain Beneficial Owners
Name and
Address of Amount and
Title of Beneficial Nature of Beneficial Percent of
Class Owner Ownership (1) Class
Limited USAA Properties 6,090 Limited 10.1%
Partnership IV, Inc. (General Partnership Interests
Interests Partner)(2)
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 Interests in the same proportion as all other
Limited Partners in the event a vote of Limited
Partners is taken.
(2) USAA Properties IV, 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.
No arrangements are known to the Partnership which may result
in a change of control of the Partnership.
<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 the Advisory Agreement, the Adviser, an
affiliate of the General Partner, can receive, in the aggregate,
property acquisition fees of up to 5% of the gross offering
proceeds; real estate brokerage commissions of up to 2% of the
aggregate selling prices of properties sold; and 9% of adjusted
cash flow from operations as its management fee.
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. USAA Investment Management
Company may receive a maximum annual advisory fee of 1/2 of 1% of
the amount of any temporary investment in a money market fund or
mutual fund sponsored by USAA or any affiliate of USAA. 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.
<PAGE>
<TABLE>
A summary of transactions with affiliates follows for the years
ended December 31, 1995, 1994 and 1993:
<CAPTION>
Reimbursement Interest Management Lease Interest
of Expenses (1) Income Fees Commissions Expense (2) Total
<S> <C> <C> <C> <C> <C> <C>
USAA Mutual
Fund, Inc.:
1995 $ -- (27) -- -- -- (27)
1994 -- (542) -- -- -- (542)
1993 -- (7,939) -- -- -- (7,939)
USAA Real Estate
Company:
1995 108,885 -- 90,376 -- 600,000 799,261
1994 110,947 -- 91,449 -- 600,000 802,396
1993 107,046 -- 129,404 -- 600,000 836,450
Quorum Real Estate
Services Corporation:
1995 36,559 -- 52,802 9,487 -- 98,848
1994 22,556 -- 63,118 8,865 -- 94,539
1993 13,818 -- 58,350 10,588 -- 82,756
(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.
(2) Represents interest expense incurred on a note payable.
</TABLE>
<PAGE>
PART IV
Item 14. Exhibits, Consolidated Financial Statement Schedule
and Reports on Form 8-K
The following documents are filed as part of this report.
(a) 1. Consolidated Financial Statements
The following consolidated financial statements,
notes to consolidated financial statements and
independent auditors' report are included in Part II
Item 8:
Consolidated Balance Sheets as of
December 31, 1995 and 1994
Consolidated Statements of Operations
for the Years Ended December 31,
1995, 1994 and 1993
Consolidated Statements of Partners'
Equity for the Years Ended
December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows
for the Years Ended December 31,
1995, 1994 and 1993
Notes to Consolidated Financial Statements
Independent Auditors' Report
2. Consolidated Financial Statement Schedule
Real Estate and Accumulated
Depreciation as of December 31,
1995 (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 consolidated financial statements or the notes thereto.
<PAGE>
Item 14.(a) 3. Exhibits
Exhibit
No. Description
3(a) Restated Certificate and Agreement of
Limited Partnership dated as of June 8,
1987,attached as Exhibit A to the Partnership's
Prospectus dated June 8, 1987 filed pursuant
to Rule 424(b), (Regis. No. 33-11892)
incorporated herein by this reference.
27 Financial Data Schedules
99(a) "Glossary" pages 87-89 contained in the
Prospectus dated June 8, 1987, filed as a
part of Amendment No. 2 to the Registration
Statement on Form S-11 (File No. 33-11892).
99(b) "Management Compensation" at pages 12-15 and
"Income and Losses and Cash Distributions"
at pages 46-49 of the Prospectus, dated June
8, 1987, filed as part of Amendment No. 2 to
the Registration Statement on Form S-11
(File No. 33-11892).
Item 14. (b) Reports filed on Form 8-K
No Current Reports on Form 8-K have been filed during the
last quarter covered by this Form 10-K.
<PAGE>
<TABLE>
SCHEDULE III USAA INCOME PROPERTIES IV LIMITED PARTNERSHIP
Real Estate and Accumulated Depreciation
December 31, 1995
<CAPTION>
Cost Capitalized
Initial Cost to Subsequent to
Partnership Acquisition
Buildings
Year of Date and Carrying
Construction Acquired Description Land Improvements Improvements Costs
<S> <C> <C> <C> <C> <C> <C>
1986 July 20, 1987 Linear Technology
Office Bldg.,
Milpitas, CA $ 777,000 4,936,164 -- --
1987 Oct. 26, 1987 Eastman Kodak
Office Bldg.,
San Diego, CA 2,425,416 4,419,437 1,543,630 --
1987 Dec. 31, 1987 1881 Pine Street
Office Bldg.,
St. Louis, MO 500,000 12,428,162 730,427 --
1987 May 31, 1988 Apollo Computer
Research and
Development
Headquarters
Building,
Chelmsford, MA 4,800,000 26,952,547 523,680 --
$ 8,502,416 48,736,310 2,797,737 --
<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 Improvements (2)(4) (1) (3) Payable (5)
<S> <C> <C> <C> <C> <C> <C> <C>
1986 July 20, 1987 Linear Technology
Office Bldg.,
Milpitas, CA 777,000 4,936,164 5,713,164 1,384,840 --
1987 Oct. 26, 1987 Eastman Kodak
Office Bldg.,
San Diego, CA 2,425,416 5,778,341 8,203,757 2,008,280 1,192,098
1987 Dec. 31, 1987 1881 Pine Street
Office Bldg.,
St. Louis, MO 1,012,600 12,645,988 13,658,588 3,317,617 --
1987 May 31, 1988 Apollo Computer
Research and
Development
Headquarters
Building,
Chelmsford, MA 4,805,000 27,471,228 32,276,228 6,922,649 15,446,788
9,020,016 50,831,721 59,851,737 13,633,386 16,638,886
<PAGE>
Schedule III (continued)
NOTES:
(1) Depreciation is based on a 30 year life, straight-line method for buildings.
<S> <C>
(2) Reconciliation of real estate:
Balance at December 31, 1992 $ 58,785,294
Additions during period-improvements 741,896
Balance at December 31, 1993 59,527,190
Additions during period-improvements 39,306
Balance at December 31, 1994 59,566,496
Additions during period-improvements 285,241
Balance at December 31, 1995 $ 59,851,737
(3) Reconciliation of accumulated depreciation:
Balance at December 31, 1992 $ 8,109,450
Depreciation during period 1,784,167
Balance at December 31, 1993 9,893,617
Depreciation during period 1,866,275
Balance at December 31, 1994 11,759,892
Depreciation during period 1,873,494
Balance at December 31, 1995 $ 13,633,386
(4) The aggregate cost of real estate owned by the Partnership at December 31, 1995 for Federal
Income Tax Purposes is $59,716,910, including $31,767,968 of the Partnership's share of real
estate owned by joint venture.
(5) The investment property is pledged as security for the mortgages payable for which there is no
recourse to the Partnership.
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
THE PARTNERS
USAA INCOME PROPERTIES IV LIMITED PARTNERSHIP:
Under date of January 29, 1996, we reported on the consolidated
balance sheets of USAA Income Properties IV Limited Partnership
and majority-owned joint venture as of December 31, 1995 and
1994, and the related consolidated statements of operations,
partners' 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 aforementioned consolidated financial
statements, we also have audited the related consolidated
financial statement schedule as listed in Item 14(a)2. This
consolidated financial statement schedule is the responsibility
of the Partnership's management. Our responsibility is to express
an opinion on the consolidated financial statement schedule based
on our audits.
In our opinion, such consolidated financial statement schedule,
when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/S/KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
San Antonio, Texas
January 29, 1996
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities and Exchange Act of 1934, USAA INCOME PROPERTIES IV
LIMITED PARTNERSHIP has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized:
USAA INCOME PROPERTIES IV LIMITED PARTNERSHIP
(Registrant)
By: USAA INCOME PROPERTIES IV, INC.,
General Partner
By: /s/Edward B. Kelley
Edward B. Kelley
Chairman, President,
Chief Operating Officer
and Director
Date: March 28, 1996
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
/s/Edward B. Kelley Date: March 28, 1996
Edward B. Kelley
Director, Chairman of the Board,
President and Chief Operating Officer
of the General Partner
/s/T. Patrick Duncan Date: March 28, 1996
T. Patrick Duncan
Director, Vice Chairman,
Senior Vice President - Real Estate
Operations of the General Partner
/s/Randal R. Seewald Date: March 28, 1996
Randal R. Seewald
Director, Vice President,
Secretary and Legal Counsel
<PAGE>
USAA INCOME PROPERTIES IV LIMITED PARTNERSHIP
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
No. Description Page
3(a) Restated Certificate and Agreement
of Limited Partnership dated as of
June 8, 1987, attached as Exhibit A
to the Partnership's Prospectus dated
June 8, 1987 filed pursuant to Rule 424
(b), (Regis. No. 33-11892) incorporated
herein by this reference.
27 Financial Data Schedules
99(a) "Glossary" pages 87-89 contained in the
Prospectus dated June 8, 1987, filed
as a part of Amendment No. 2 to the
Registration Statement on Form S-11 (File
No. 33-11892).
99(b) "Management Compensation" at pages
12-15 and "Income and Losses and Cash
Distributions" at pages 46-49 of the
Prospectus, dated June 8, 1987, filed
as part of Amendment No. 2 to the Registration
Statement on Form S-11 (File No. 33-11892).
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 2,278,982
<SECURITIES> 0
<RECEIVABLES> 81,956
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 59,851,737
<DEPRECIATION> 13,633,386
<TOTAL-ASSETS> 48,773,131
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 21,513,860
<TOTAL-LIABILITY-AND-EQUITY> 48,773,131
<SALES> 0
<TOTAL-REVENUES> 4,276,734
<CGS> 0
<TOTAL-COSTS> 2,094,869
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,134,420
<INCOME-PRETAX> (267,510)
<INCOME-TAX> 0
<INCOME-CONTINUING> (267,510)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (267,510)
<EPS-PRIMARY> (4.38)
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995 DEC-31-1995
<PERIOD-END> MAR-31-1995 JUN-30-1995 SEP-30-1995
<CASH> 2,523,145 2,730,054 2,563,790
<SECURITIES> 0 0 0
<RECEIVABLES> 96,955 59,765 62,260
<ALLOWANCES> 0 0 0
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 0 0 0
<PP&E> 47,345,196 46,953,305 46,482,513
<DEPRECIATION> 0 0 0
<TOTAL-ASSETS> 50,237,497 49,973,578 49,326,285
<CURRENT-LIABILITIES> 0 0 0
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 0 0 0
<OTHER-SE> 22,626,717 22,439,846 21,971,011
<TOTAL-LIABILITY-AND-EQUITY> 50,237,497 49,973,578 49,326,285
<SALES> 0 0 0
<TOTAL-REVENUES> 1,279,211 2,440,691 3,352,412
<CGS> 0 0 0
<TOTAL-COSTS> 487,436 987,595 1,533,225
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 532,867 1,066,570 1,601,087
<INCOME-PRETAX> 157,904 200,180 (39,507)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> 157,904 200,180 (39,507)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 157,904 200,180 (39,507)
<EPS-PRIMARY> 2.58 3.28 (.65)
<EPS-DILUTED> 0 0 0
</TABLE>
EXHIBIT 99.a
GLOSSARY
As used in this Prospectus, the following definitions of
terms are applicable:
"Acquisition Expenses": Include, without limitation, legal
fees and expenses, travel and communication expenses, costs of
appraisals, accounting fees and expenses, title insurance,
mortgage fees, acquisition fees and brokerage commissions paid to
third parties, and miscellaneous expenses related to selection
and acquisition of properties, whether or not acquired.
"Acquisition Fees": The total of all fees and commissions
paid by any party in connection with the purchase of Properties
including the fees to be paid to the Adviser for services in
connection with evaluating and selecting potential properties for
the Partnership.
"Additional Limited Partner(s)": All those who are admitted
to the Partnership as limited partners after the Initial Limited
Partner.
"Adjusted Cash from Operations": Cash receipts from Gross
Revenues after deducting (i) operating expenses (without
deduction for depreciation), (ii) amounts set aside for
reasonable reserves plus any earnings thereon, (iii) payments on
the Partnership's other current obligations (other than the
Adviser Management Fee) and (iv) any earnings or interest on
Partnership funds prior to investment of such funds in
Properties.
"Adviser": USAA Real Estate Company.
"Adviser Management Fee": The fee payable to the Adviser on
a quarterly basis in an amount equal to 9% of Adjusted Cash from
Operations in consideration of services rendered pursuant to the
Advisory Agreement.
"Advisory Agreement": The agreement between the Partnership
and the Adviser pursuant to which the Adviser will perform
certain services for the Partnership and be entitled to receive
the Adviser Management Fee.
"Affiliate": (i) any person directly or indirectly
controlling, controlled by, or under common control with, another
person, (ii) a person owning or controlling 10% or more of the
outstanding voting securities or beneficial interests of such
other person, (iii) any officer, director, partner, trustee or
any other person acting in a substantially similar capacity of
<PAGE>
such person, and (iv) if such other person is an officer,
director, partner, trustee or holder of 10% or more of the voting
securities or beneficial interests of such person, any other
entity for which such person acts in any capacity.
"Average Annual Unreturned Invested Capital:" The total of
all the Limited Partners' Original Invested Capital reduced by
the total of all distributions of Net Proceeds from Sales or
Refinancings (but not below zero) to Limited Partners, as
reflected on the Partnership's books and records, weighted on a
daily average basis for the period.
"Code": The Internal Revenue Code of 1986, as amended.
"Final Closing Date": December 31, 1987, or such other date
designated by the General Partner for the purchase of the last
Interest by a subscriber, but in no event later than one year
from the date of the Prospectus.
"Front-End Fees": Fees and expenses paid by any party for
any services rendered during the organizational or acquisition
phase of the offering, including Organizational and Offering
Expenses, selling commissions, Acquisition Fees, and Acquisition
Expenses.
"General Partner": USAA Properties IV, Inc. or its
successor.
"Gross Revenues": All Partnership revenues from whatever
source derived, exclusive of (i) Partners' capital contributions
and (ii) revenues from the borrowing of funds by the Partnership
or the sale or refinancing of Partnership Properties.
"Initial Admittance Date": The date on which the first
Additional Limited Partner is admitted to the Partnership.
"Initial Limited Partner": USAA Real Estate Company, who
shall withdraw from the Partnership as a Limited Partner on the
Initial Admittance Date.
"Interest": The limited partnership interest in the
Partnership acquired by the payment to the Partnership of $500
per interest purchased, upon an initial minimum purchase of 10
interests and additional purchases in increments of 1 interest.
"Limited Partners": All persons who are admitted to the
Partnership as limited partners.
"Net Cash from Operations": Adjusted Cash from Operations
less the Adviser Management Fee.
"Net Proceeds from Sales or Refinancings": Cash receipts
realized by the Partnership from sales or refinancings of the
Properties after (i) amounts set aside for reasonable reserves
and (ii) payments on the Partnership's other current obligations.
<PAGE>
"Nonrecourse Deductions": Partnership losses or deductions
attributable to Nonrecourse Liabilities and for each Partnership
taxable year shall equal in the aggregate for the Partnership the
net increase, if any, in the amount of Partnership Minimum Gain
during that taxable year. The Nonrecourse Deductions for a
Partnership taxable year shall consist first of depreciation or
cost recovery deductions with respect to items of Partnership
property subject to one or more Nonrecourse Liabilities of the
Partnership to the extent of the increase in Partnership Minimum
Gain attributable to the Nonrecourse Liabilities to which each
such item of property is subject, with the remainder of such
Nonrecourse Deductions, if any, made up of a pro rata portion of
the Partnership's other items of deduction or loss for that
taxable year. If, however, such depreciation or cost recovery
deductions exceed the net increase in Partnership Minimum Gain, a
proportional share of each such deduction shall constitute a
Nonrecourse Deduction. If the net increase in Partnership
Minimum Gain during a Partnership taxable year exceeds the total
amount of items of Partnership loss or deduction for such taxable
year, then an amount of Partnership loss and deduction for the
Partnership's next succeeding taxable year (or years) equal to
such excess shall constitute Nonrecourse Deductions, as if there
had been a net increase in Partnership Minimum Gain during such
succeeding taxable year (or years) in the amount of such excess.
"Nonrecourse Liability": A liability of the Partnership (or
portion thereof) with respect to which none of the Partners (or
any person related to a Partner) has any economic risk of loss
(other than through their interests as Partners in the
Partnership's assets subject to the liability).
"Organizational and Offering Expenses": Expenses incurred
in connection with the organization of the Partnership and the
offering of the Interests (excluding selling commissions)
including legal fees, accounting fees, escrow fees, printing
costs, filing and qualification fees, reimbursement of expenses
incurred by the General Partner or its Affiliates, and other
disbursements in connection with the sale and distribution of
Interests.
"Original Invested Capital": An amount equal to $500 per
Interest.
"Partner": A General Partner or any Limited Partner.
"Partnership": The partnership formed and continued under
the Restated and Amended Agreement of Limited Partnership
attached as Exhibit A.
"Partnership Minimum Gain": The amount determined by
computing, with respect to each Nonrecourse Liability, the amount
of gain, if any, that would be realized by the Partnership if it
disposed of (in a taxable transaction) the Property subject to
such liability in full satisfaction thereof, and by then
aggregating the amounts so computed.
<PAGE>
"Partner's Share of Partnership Minimum Gain": As to any
Partner at the end of any Partnership taxable year, the amount
equal to the aggregate Nonrecourse Deductions allocated to such
Partner (and such Partner's predecessors in interest) up to that
time, less such Partners (and such predecessor's) aggregate share
of the net decreases in Partnership Minimum Gain up to that time.
A Partner's share of the net decrease in Partnership Minimum Gain
during a Partnership taxable year equals an amount that bears the
same relation to the net decrease in Partnership Minimum Gain
during such year as such Partner's Share of Partnership Minimum
Gain at the end of the prior taxable year of the Partnership
bears to the amount of Partnership Minimum Gain at the end of
such prior taxable year.
"Preferred Return": The cumulative non-compounded preferred
return to each Limited Partner equal to 6% per annum on his
Average Annual Unreturned Invested Capital payable from either
distributions of Net Cash from Operations or Net Proceeds from
Sales or Refinancings. Such cumulative preferred return shall be
calculated from the date the owner of such Interests is admitted
as a Limited Partner.
"Property" or "Properties": Shall mean one or more of the
properties actually acquired by the Partnership.
"Prospectus": The prospectus contained in the Registration
Statement filed with the Securities and Exchange Commission.
"Purchase Price": The price paid upon the purchase or sale
of a Property, including the amount of Acquisition Fees and all
liens and mortgages on the Property, but excluding points and
prepaid interest.
"Qualified Trust": Any employee benefit plan or other
entity subject to the provisions of Title I of ERISA or described
in Code Section 4975(e)(1) (other than a plan described in Code
Sections 4975(g)(2) or 4975(g)(3)), including an individual
retirement account defined in Code Section 408(a).
"Registration Statement": The Partnership's Registration
Statement on Form S-11 filed with the Securities and Exchange
Commission and as amended from time to time.
"Sales Agent": USAA Investment Management Company, an
Affiliate of the General Partner.
"Subordinated Disposition Fee": The fee payable to the
Adviser in connection with its services rendered in the sale or
transfer of a Property.
"Taxable Entity": A person or entity that is not a Tax-
Exempt Entity.
"Taxable Limited Partner": A Limited Partner that is a
Taxable Entity on the date that he or it is admitted to the
Partnership.
<PAGE>
"Tax-Exempt Entity": A person or entity that is a tax-
exempt entity within the meaning of Code Section 168(h)(2)(A) as
in effect after December 31, 1986, including (i) the United
States, any State or political subdivision thereof, any
possession of the United States, or any agency or instrumentality
of any of the foregoing, (ii) an organization (other than a
cooperative described in Code Section 521) which is exempt from
tax imposed by Chapter 1 of Subtitle A of the Code, and (iii) any
foreign person or entity.
"Tax-Exempt Limited Partner": A Limited Partner that is a
Tax-Exempt Entity on the date that he or it is admitted to the
Partnership.
EXHIBIT 99.b
MANAGEMENT COMPENSATION
The following table sets forth the types and estimates of the
amounts of all fees, compensation, income, distributions and other
payments that the General Partner and its Affiliates will or may
receive in connection with the operations of the Partnership. In
addition, the General Partner or its Affiliates may receive a
property management fee and an Affiliate may receive fees for
insurance brokerage services. See the discussion following the
table set forth below. ALTHOUGH THE GENERAL PARTNER BELIEVES THE
FOLLOWING FEES ARE REASONABLE AND COMPETITIVE, SUCH FEES,
COMPENSATION, INCOME, DISTRIBUTIONS AND OTHER PAYMENTS WERE NOT
DETERMINED BY ARM'S-LENGTH BARGAINING. See "Conflicts of
Interest."
Form of Entity Receiving Method of Determination
Compensation Compensation & Estimated Dollar Amount
OFFERING STAGE
Selling
Commissions(1) USAA Investment $20 per Interest sold. The
Management actual amount payable to
Company (the the Sales Agent assuming
"Sales Agent") all 160,000 Interests are
sold will be $3,200,000.
Reimbursement of The Sales Agent A nonaccountable expense
Organizational allocation of 2% of
and Offering gross offering proceeds
Expenses (2) for Organizational and
Offering Expenses equal
to $800,000 if 80,000
Interests are sold and
$1,600,000 if 160,000
Interests are sold.
Annual Advisory An Affiliate of An annual advisory fee
Fees for the General of up to 1/2 of 1% of
Investment of Partner the amount of offering
Offering Proceeds proceeds invested in a
in Money Market money market or mutual
or Mutual Funds(3) fund sponsored or
<PAGE>
Form of Entity Receiving Method of Determination
Compensation Compensation & Estimated Dollar Amount
administered by USAA or
its Affiliates. Dollar
amount is not
determinable at this
time.(6)
ACQUISITION STAGE
Acquisition Fees USAA Real Estate Acquisition Fees shall be
and Expenses(4) Company (the an amount customarily
"Adviser") charged by others
rendering similar
services as an ongoing
public activity, provided
that the total of all
Acquisition Fees payable
to the Adviser shall not
exceed, with respect to
all Properties, 5% of
gross offering proceeds
($2,000,000 if 80,000
Interests are sold,
$4,000,000 if 160,000
Interests are sold). The
Adviser shall be
reimbursed for
Acquisition Expenses
incurred in an amount up
to 2% of the gross
offering proceeds. The
Adviser shall pay all
Acquisition Expenses to
the extent such
Acquisition Expenses
exceed 2% of the gross
offering proceeds.
<PAGE>
Form of Entity Receiving Method of Determination
Compensation Compensation & Estimated Dollar Amount
OPERATIONAL STAGE
Reimbursement of The General Actual cost of goods and
Partnership Partner or its materials used for and
Operational Affiliates by the Partnership and
Expenses(5) obtained from an entity
that is not an Affiliate
of the General Partner.
Dollar amount is not
determinable at this
time(6).
Interest and Other The General An amount not in excess of
Similar Charges Partner or an the amounts that would
or Fees (7) Affiliate be charged by unrelated
lending institutions on
comparable loans for the
same purpose and in the
same locality but never
in excess of 2% above the
prime rate published from
time to time by Chase
Manhattan Bank of New
York City, New York, such
amount charged not to
exceed ten percent (10%)
per annum. Dollar amount
is not determinable at
this time.(6)
Distributive The General The General Partner will
Share of Net Partner receive 1% of all
Cash from distributions of Net Cash
Operations(8) from Operations. Dollar
amount is not
determinable at this
time.(6)
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Form of Entity Receiving Method of Determination
Compensation Compensation & Estimated Dollar Amount
Adviser Management The Adviser An amount equal to 9% of
Fee Adjusted Cash from
Operations. Dollar
amount is not
determinable at this
time.(6)
LIQUIDATION STAGE
Subordinated The Adviser An amount not to exceed the
Disposition lesser of (i) one-half
Fees(9) of the competitive real
estate commission
applicable at the date
of sale, or (ii) 2% of
the sales price of a
Property. Dollar amount
is not determinable at
this time.(6)
Distributive Share The General The General Partner will
of Net Proceeds Partner receive, other than as
from Sales or a part of the liquidation
Refinancings(8) of the Partnership, 1%
of all Net Proceeds from
Sales or Refinancings
until the Limited
Partners have been
returned their Original
Invested Capital plus
their Preferred Return
from either Net Cash from
Operations or Net
Proceeds from Sales or
Refinancings.
Thereafter, Net Proceeds
from Sales or
Refinancings shall be
allocated (a) first to
the Adviser so
that it will receive any
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Form of Entity Receiving Method of Determination
Compensation Compensation & Estimated Dollar Amount
unpaid Subordinated
Disposition Fees, and
(b) then 90% to the
Limited Partners and 10%
to the General Partner.
Upon liquidation of the
Partnership the General
Partner shall receive an
amount equal to the
positive balance, if any,
in its capital account.
See "Income and Losses
and Cash Distributions."
Dollar amount is not
determinable at this
time.(6)
(1) See "The Offering".
(2) The Sales Agent shall receive a non-accountable expense
allocation for Organizational and Offering Expenses in an
amount equal to 2% of gross offering proceeds. The Sales
Agent shall pay all Organizational and Offering Expenses in
excess of such amount.
(3) The Partnership may invest offering proceeds, including
working capital reserves, from time to time in a money market
or mutual fund sponsored by USAA or its Affiliates for which
the advisory fee shall be paid annually. See "Investment
Objectives and Policies--Preliminary Investments."
(4) At a minimum, an amount equal to the greater of (i) 67% of the
Limited Partners' capital contributions or (ii) 80% of such
capital contributions reduced by .1625% for each 1% of
indebtedness encumbering the Partnership's Properties must be
committed to investment in properties. For purposes hereof,
"Investment in Properties" is the amount of capital
contributions actually paid or allocated to the purchase,
development, construction or improvement of properties
acquired by the Partnership (including working capital
reserves not in excess of 5% of gross offering proceeds) but
excluding front-end fees. The remaining capital contributions
not invested in properties are available for front-end fees:
Organizational and Offering Expenses, selling commissions,
Acquisition Fees and Acquisition Expenses, and real estate
broker commissions. Therefore, assuming the Partnership
acquires properties utilizing leverage of approximately 50% of
the aggregate Purchase Prices, it would be required to commit
to Investment in Properties 71.875% of gross offering
proceeds, computed as follows: 80% - (50 x .1625%) =
71.875%. As indicated under the "Estimated Use of Proceeds"
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table, it is anticipated that the Partnership's Investment in
Properties will be well within the limitations set forth
above.
(5) The General Partner or its Affiliates may be reimbursed for
(a) the actual cost of goods and materials used for or by the
Partnership and obtained from an entity that is not an
Affiliate of the General Partner; (b) salaries and related
salary expenses for services which could be performed directly
for the Partnership by independent parties, including legal,
accounting, transfer agent, data processing, duplicating and
administration of investor accounts; and (c) the cost of
Partnership reports and communications to investors. No
reimbursement shall be permitted for services for which the
General Partner or Affiliates receive a separate fee or for
(i) salaries, related salary expenses, traveling expenses, and
other administrative items incurred by any Controlling Persons
or which are not directly attributable to the rendering of
services to the Partnership and (ii) any indirect expenses
incurred in performing services for the Partnership, such as
rent or depreciation, utilities, capital equipment, and other
administrative items. "Controlling Person" for this purpose
shall mean any person, regardless of title, who performs
executive or senior management functions for the General
Partner or Affiliates similar to those of directors, executive
management and senior management, or any person who either
holds 5% or more equity interest in the General Partner or
Affiliates or has the power to direct or cause the direction
of the General Partner or Affiliates, whether through the
ownership of voting securities, by contract, or otherwise, or,
in the absence of a specific role or title, any person having
the power to direct or cause the direction of the management
level employees and policies of the General Partner or
Affiliates. It is not intended that every person who carries
a title such as vice president, senior vice president,
secretary or treasurer be included in the definition of
Controlling Person. In no event shall any amount charged to
the Partnership as a reimbursable expense by the General
Partner exceed the lesser of the actual cost of such services,
or 90% of the amount which the Partnership would be required
to pay to independent parties for comparable services in the
same geographic location. Reimbursements are also allowable
for certain Organizational and Offering Expenses and
expenditures incurred in connection with the acquisition of
the Properties by the Partnership.
(6) Any prediction of such dollar amount would necessarily involve
assumptions of future events that cannot be determined at this
time.
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(7) The Partnership Agreement permits the General Partner or any
Affiliate of the General Partner to make a loan to the
Partnership if the interest and other similar charges or fees
on any such loan are not in excess of the amounts which would
be charged by unaffiliated lending institutions on comparable
loans for the same purpose in the same locality but not in
excess of 2% above the prime rate published from time to time
during the term of the loan by Chase Manhattan Bank of New
York City, New York, such amount charged not to exceed 10% per
annum.
(8) See "Income and Losses and Cash Distributions."
(9) Subordinated Disposition Fees payable to the Adviser or its
Affiliates for services in connection with the sale of
Properties shall be cumulative but shall be paid only after
the Limited Partners have been returned their Original
Invested Capital plus their Preferred Return from either Net
Cash from Operations or Net Proceeds from Sales or
Refinancings. If an unaffiliated broker participates in the
sale of a Property, the subordination requirement will apply
only to the fee, if any, earned by the Adviser or its
Affiliates. The total of all real estate fees payable to all
parties in connection with the sale of a Property, including
the Subordinated Disposition Fee, shall not exceed the lesser
of a competitive real estate fee which is reasonable,
customary and competitive in light of the size, type and
location of the Property or 6% of the sales price of the
Property.
An Affiliate of the General Partner may provide insurance
brokerage services in connection with obtaining insurance on the
Properties so long as the cost of providing such service, including
cost of the insurance, is no greater than the lower quote obtained
from two unaffiliated insurance agencies and the coverage and terms
are likewise comparable. In no event may such services be provided
by any such Affiliate unless it is independently engaged in the
business of providing such services to other than Affiliates and at
least 75% of its insurance brokerage service gross revenue is
derived from other than Affiliates.
It is presently contemplated that the Properties will be
managed by unaffiliated management firms, and by the Adviser as
necessary, or by operating partners in situations where the
Partnership is a partner or joint venturer. The Adviser and its
Affiliates are presently engaged in providing property management
services for prior USAA partnerships and will in the future provide
such services to the Partnership for some or all of the Properties.
The Partnership Agreement permits the Partnership to obtain
property management services from the General Partner, the Adviser,
or another Affiliate of the General Partner and in the event such
services are provided the compensation therefor will be limited to
the lesser of the competitive fee for similar services in the same
geographic area or (i) 5% of gross revenues from each residential
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property (included in such 5% are fees for leasing and related
services), (ii) 6% of gross revenues from each industrial and
commercial property if leasing and related services are performed,
(iii) 3% of gross revenues from each industrial and commercial
property if no leasing and related services are performed, and (iv)
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). The actual amount of such compensation, if any, is
not determinable at this time.
Front-End Fees consisting of Organizational and Offering
Expenses, selling commissions, Acquisition Fees and Acquisition
Expenses shall in no event exceed 13% of gross offering proceeds.
INCOME AND LOSSES AND CASH DISTRIBUTIONS
NET CASH FROM OPERATIONS
The Partnership Agreement prohibits the reinvestment (or
investment) of Net Cash from Operations available for distribution,
except as a temporary investment pending distribution to Partners.
The availability of Net Cash from Operations is subject to (i)
payment of the Partnership's operating expenses (without deduction
for depreciation), (ii) amounts set aside to maintain a reasonable
working capital reserve (see "Investment Objectives and Policies-
- -Working Capital Reserve"), (iii) payment of the Partnership's other
current obligations, and (iv) payment of the Adviser Management
Fee. See "Management Compensation" for details on calculation of
the Adviser Management Fee.
Distribution of Net Cash from Operations will be made 1% to
the General Partner and 99% to the Limited Partners. See
"Management Compensation" for a discussion of payment of the
Adviser Management Fee to the Adviser from Adjusted Cash from
Operations. Any Net Cash from Operations received by a Limited
Partner shall count toward his 6% cumulative Preferred Return.
Distributions of Net Cash from Operations to Limited Partners will
be made quarterly, at the discretion of the General Partner and,
except for the first distribution, will be apportioned to the
Limited Partners of record on the last day of the calendar quarter
immediately preceding such distribution in proportion to the number
of Interests owned by each Limited Partner as of that date. The
first distribution of Net Cash from Operations will be apportioned
to each Limited Partner of record on the last day of the calendar
quarter immediately preceding such distribution in the ratio that
(i) the number of Interests held by each such Limited Partner
multiplied by the number of days that such Interests were
outstanding through the last day of the calendar quarter
immediately preceding such distribution bears to (ii) the sum for
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all Interests of the product computed in (i). The ultimate amount
of any of such distributions will depend upon attaining and
thereafter maintaining operating income and expenses of Properties
at levels permitting such distributions.
NET PROCEEDS FROM SALES OR REFINANCINGS
During the two-year period commencing on the date of this
Prospectus, any cash received on the refinancing of any Property
will not be distributed but will be treated in the same manner as
net proceeds of the offering and reinvested in other Properties.
Thereafter, Net Proceeds from Sales or Refinancings will not be
invested or reinvested in any property or investment other than the
Properties, except as a temporary investment pending distribution
to Partners. Net Proceeds from Sales or Refinancing, other than as
part of the liquidation of the Partnership, will be distributed as
follows:
(i) First, 1% to the General Partner and 99% to the
Limited Partners until the Limited Partners have been returned
their Original Invested Capital from Net Proceeds from Sales
or Refinancings, plus their Preferred Return from either
distributions of Net Cash from Operations or Net Proceeds from
Sales or Refinancings;
(ii) Second, to the Adviser so that it will receive any
unpaid Subordinated Disposition Fees; and
(iii) Third, 90% to the Limited Partners and 10% to the
General Partner.
However, distributions in liquidation of the Partnership will be
made in proportion to and in an amount equal to the Partners'
positive capital account balances. For a discussion of the
calculation of Subordinated Disposition Fees, see "Management
Compensation."
Distribution of Net Proceeds from Sales or Refinancings, if
any, will be in such amounts and at such times as the General
Partner may determine. The amount of each distribution of Net
Proceeds from Sales or Refinancings to Limited Partners will be
apportioned and paid to the Limited Partners of record as of the
last day of the calendar month in which such Net Proceeds from
Sales or Refinancings were received by the Partnership as follows:
(i) First, an amount equal to the unreturned Original
Invested Capital of all Limited Partners shall be distributed
in proportion to the unreturned Original Invested Capital of
each such Limited Partner;
(ii) Second, an amount equal to the unpaid Preferred
Return of all Limited Partners shall be distributed in
proportion to the unpaid Preferred Return of each such Limited
Partner;
(iii) Third, the balance shall be distributed in
proportion to the number of Interests owned by each Limited
Partner, except that Net Proceeds from Sales or Refinancings
from the disposition of the last Property (or Properties if in
a single transaction) generally will be apportioned in
proportion to each Limited Partner's positive capital account
balance.
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ALLOCATION OF INCOME AND LOSSES
On and after the Initial Admittance Date, except as otherwise
provided herein, all items of income, gain, loss, deduction and
credit from operations will be allocated 1% to the General Partner
and 99% to the Limited Partners.
Net gain from the sale or other disposition of a Property is
generally allocated as follows:
(i) First, to the Partners in an amount up to and in
proportion with any negative balances in their respective
capital accounts in excess of each respective Partner's Share
of Partnership Minimum Gain as of the end of the taxable year
for which the allocation is made;
(ii) Second, 99% to the Limited Partners and 1% to the
General Partner for all taxable years ending before the
Limited Partners have been returned their Original Invested
Capital, plus their Preferred Return. For the taxable year
during which distributions of Net Proceeds from Sales or
Refinancings to Limited Partners are sufficient to return to
the Limited Partners their Original Invested Capital, plus
their Preferred Return, net gain is allocated 99% to the
Limited Partners and 1% to the General Partner in the minimum
amount necessary, if any, so that the capital account balances
of the Limited Partners equal the amounts of their respective
unrecovered Original Invested Capital plus their unpaid
Preferred Return less their respective Partner's Share of
Partnership Minimum Gain as of the end of such taxable year;
(iii) Third, 99% to the Limited Partners and 1% to the
General Partner in the minimum amount necessary, if any, so
that the aggregate balance in the capital accounts of the
Limited Partners in excess of an amount equal to the excess of
the sum of their unrecovered Original Invested Capital and
their unpaid Preferred Return over the aggregate of the
Limited Partners' Share of Partnership Minimum Gain as of the
end of the taxable year for which the allocation is made, and
the balance in the capital account of the General Partner in
excess of 1.01% of an amount equal to the excess of the sum of
the Limited Partners' unrecovered Original Invested Capital
and their unpaid Preferred Return over the aggregate of the
Limited Partners' Share of Partnership Minimum Gain as of the
end of the taxable year for which the allocation is made, is
in the ratio of 90 to 10;
(iv) Fourth, 90% to the Limited Partners and 10% to the
General Partner.
To the extent ordinary income from recapture of depreciation
is incurred upon the sale or other disposition of a Property, such
ordinary income shall be allocated, to the extent possible, to the
Partners as a portion of their net gain allocated to the extent
such Partners received the benefit of the depreciation deduction
resulting in such ordinary income from recapture of depreciation.
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Net loss from the sale or other disposition of a Property is
generally allocated between the Limited Partners and the General
Partner as follows:
(i) First, if any gain has been allocated pursuant to
subparagraph (iii) or (iv) of the preceding paragraph, then
100% to the General Partner in the minimum amount necessary,
if any, so that the aggregate balance in the capital accounts
of the Limited Partners in excess of an amount equal to the
excess of the sum of their unrecovered Original Invested
Capital and their unpaid Preferred Return over the aggregate
of the Limited Partners' Share of Partnership Minimum Gain as
of the end of the taxable year for which the allocation is
made, and the balance in the capital account of the General
Partner in excess of 1.01% of an amount equal to the excess of
the sum of the Limited Partners' unrecovered Original Invested
Capital and their unpaid Preferred Return over the aggregate
of the Limited Partners' Share of Partnership Minimum Gain as
of the end of the taxable year for which the allocation is
made, is in the ratio of 90 to 10;
(ii) Second, if any gain has been allocated pursuant to
subparagraph (iii) or (iv) of the preceding paragraph, then
10% to the General Partner and 90% to the Limited Partners
the aggregate balance in the capital accounts of the Limited
Partners is equal to the excess of the sum of their
unrecovered Original Invested Capital and their unpaid
Preferred Return over the aggregate of the Limited Partners'
Share of Partnership Minimum Gain as of the end of the taxable
year for which the allocation is made; and
(iii) Third, 1% to the General Partner and 99% to the
Limited Partners.
Special rules apply to the allocation of income, gain, loss and
deductions in certain circumstances. See Section 9.4 of the
Partnership Agreement.
Except for Interests which are transferred during a taxable
year, in general, income, gain, loss, deduction and credit
allocated to the Limited Partners shall be computed annually and
apportioned to the Limited Partners of record at the end of each
taxable year in proportion to the number of Interests owned by each
Limited Partner as of that date. Allocations to Limited Partners
attributable to periods before the Final Closing Date shall be
computed by an interim closing of the books as of the end of the
day immediately preceding each admittance date of Additional
Limited Partners and at the end of any taxable year during such
periods and shall be apportioned to the Limited Partners of record
as of the end of the day immediately preceding each such admittance
date of Additional Limited Partners or on the last day of such
taxable year in proportion to the number of Interests owned by each
such Limited Partner as of each such date. Allocations of gain and
loss resulting from a sale of a Property shall be apportioned to
those Limited Partners of record on the date the Partnership
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recognizes such gain or loss and who are entitled to allocations of
gain or loss under Section 9.4 of the Partnership Agreement. In
the event of a transfer of an Interest, each item of Partnership
income, gain, loss, deduction and credit attributable to the
transferred Interest is generally allocated on an equal daily basis
to the owner of such Interest on the basis of the number of days
that such person was the owner of such Interest; except that net
gain or net loss from the sale or other disposition of a Property
is allocated to the owner of the Interest as of the date that such
net gain or net loss is recognized by the Partnership.
There are circumstances in which a Limited Partner in any year
may be allocated more taxable income than he would receive in
distributions of cash. See "Federal Income Tax Aspects--Taxable
Income in Excess of Cash Distributions."
The General Partner may amend the provisions of the
Partnership Agreement as appropriate as a result of the
promulgation of final Treasury Regulations under Sections 704 and
706 of the Code, if in the opinion of counsel such an amendment is
advisable to reflect allocations among the Limited Partners and the
General Partner consistent with those regulations. See "Federal
Income Tax Aspects--Allocations of Income and Loss." For a more
detailed description of the allocations under the Partnership
Agreement, see Article IX of the Partnership Agreement.
CAPITAL ACCOUNTS
Each Partner shall have a capital account which shall be
increased by the amount of such Partner's capital contribution to
the Partnership and the amount of any income or gain allocated to
such Partner and shall be decreased by the amount of any
syndication cost, other nondeductible and deductible expense, loss
or deduction allocated to such Partner and the amount of all
distributions to such Partner. The capital accounts shall be
established and maintained in accordance with federal income tax
principles as set forth in Treasury Regulations.
The General Partner is required to contribute, immediately
prior to the termination of the Partnership, cash equal to the
lesser of (i) the deficit balance in its capital account or (ii)
the excess of 1.01% of all Limited Partners' Original Invested
Capital over the amount of capital previously contributed by the
General Partner. A deficit in a Partner's capital account is not
considered an asset of the Partnership.
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SOURCES AND CHARACTER OF CERTAIN DISTRIBUTIONS
See "Investment Objectives and Policies--Working Capital
Reserve" for information pertaining to the characterization of
distributions from the working capital or other reserve as Net
Proceeds from Sales or Refinancings in the event of any
distributions from the working capital or other reserve which
result in the reduction of such reserve below 3% of gross proceeds
from the offering, the amount initially reserved for this purpose.
