UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K/A
Amendment No. 2
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended December 31, 1996
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number 0-16171
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 ]
<PAGE>
State the aggregate market value of the voting stock held by non-
affiliates of the registrant: Not Applicable
DOCUMENTS INCORPORATED BY REFERENCE:
Certain portions of the prospectus of the registrant dated 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>
INTRODUCTORY NOTE
This Amendment No. 2 to the Annual Report on Form 10-K of USAA
Income Properties IV Limited Partnership is being filed for the
purpose of changing the method for accounting for the Partnership's
55.84% interest in USAA Chelmsford Associates Joint Venture. Prior
financial statements of the Partnership were prepared on a consolidated
basis with USAA Chelmsford Associates Joint Venture. For all periods
presented in the accompanying financial statements, the Partnership's
55.84% interest in USAA Chelmsford Associates Joint Venture is accounted
for using the equity method. Only those sections affected by the change
are being filed in this amendment.
<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, Financial Statement Schedule and Reports on
Form 8-K
Signatures
Index to Exhibits
<PAGE>
PART I
Item 2. Properties
The Partnership owns, either directly or through a joint
venture, the properties described below as of December 31, 1996:
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, 1996,
the property was 100% occupied and
average monthly cash rental was
approximately $32,000. 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, 1996, the property was 100%
occupied and average monthly cash
rental was $49,000. The mortgage
payable on this property is
$1,131,500. 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, 1996, the property
was 82% leased and average monthly
cash rental was $24,000. 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, 1996, the
property was 100% leased and
average monthly cash rental was
$235,000. The mortgage payable
on this property is
$15,287,583. This building is
<PAGE>
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 Financial
Statements in Item 8, for further discussion relating to the
properties and encumbrances thereon.
<PAGE>
PART II
<TABLE>
Item 6. Selected Financial Data
<CAPTION>
USAA INCOME PROPERTIES IV LIMITED PARTNERSHIP
SELECTED FINANCIAL DATA
Years Ended December 31, 1996, 1995, 1994, 1993 and 1992
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Rental Income $ 1,227,447 1,687,107 2,522,901 2,498,802 2,616,995
Equity in earnings of
Joint Venture 234,212 215,804 228,842 220,713 212,566
Interest Income 75,275 121,801 50,775 13,815 18,279
Net Income(Loss) (887,393) (267,510) 557,195 622,013 731,669
Net Income(Loss) per Limited
Partnership Interest (1) (14.52) (4.38) 9.12 10.18 11.97
Taxable Income(Loss) (497,321) 122,089 1,053,107 920,808 979,092
Taxable Income(Loss) per
Limited Partnerhip
Interest (1) (8.14) 2.00 17.23 15.07 16.02
Cash Distributions 595,784 916,591 916,592 1,191,567 1,649,864
Cash Distributions per
Limited Partnership
Interest (2) 9.75 15.00 15.00 19.50 27.00
Total Assets at Period End 27,353,443 28,782,408 30,020,710 30,533,629 31,158,659
Total Mortgages and Note
Payable at Period End 7,131,500 7,192,098 7,247,175 7,297,216 7,342,683
(1) Based on limited partnership interests issued at period end and net
income(loss)/taxable income(loss) 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
financial statements and related notes appearing elsewhere in this report.
</TABLE>
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
At December 31, 1996, the Partnership had cash of $33,233 and
temporary investments of $753,756. Included in these amounts
were 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 and lease commissions. Accounts payable
consisted of amounts due to affiliates for management fees and
reimbursable expenses and amounts due to third parties for
expenses incurred for operations. Accrued expenses and other
liabilities consisted of security deposits and prepaid rent.
During the third quarter of 1996, a five-year lease was signed
with Sherwood Medical Company at 1881 Pine Street in St. Louis,
Missouri. Sherwood occupied the building on August 24, 1996 and
the lease will expire August 2001. The lease provides for an
annual rental rate of $12.75 per square foot for 22,376 square
feet of space and annual parking revenue of $21,600. In addition
to rent, Sherwood will pay their pro rata share of operating
expenses in excess of their base year of 1996. An allowance for
tenant improvements in the approximate amount of $259,600 was
provided which was paid out of the working capital reserve of the
Partnership. In addition, Sherwood paid a security deposit of
$23,774.
During the fourth quarter of 1996, a five-year lease was signed
with Busch Creative Services Corporation for 64,805 square feet
at 1881 Pine Street. This lease commenced February 1, 1997 and
will expire on January 31, 2002. The lease provides for an
annual rental rate of approximately $12.25 per square foot and
annual parking revenue of $71,400. In addition, this tenant will
pay their pro rata share of operating expenses in excess of their
base year of 1997. An allowance for tenant improvements of
$1,036,880 was provided to be paid out of the working capital
reserve of the Partnership. These two leases at 1881 Pine Street
have resulted in 87,181 square feet of the 106,340 square feet
leased at December 31, 1996.
During 1995, the lease with Hewlett-Packard Company, the single
tenant at the Apollo Building in Chelmsford, Massachusetts was
renewed for an additional 41 months. The new monthly rental rate
of approximately $.57 per square foot for the 291,424 square foot
building began in January 1997. This rate is lower than the rate
paid in 1996 of approximately $.76 per square foot and reflects
the market conditions in the area surrounding the property. An
allowance for tenant improvements was provided at a total of
$565,000 to be paid from the joint venture working capital. During
1996, Hewlett-Packard used approximately $260,000 of the
allowance for tenant improvements. Approximately $197,000 of the
tenant improvement allowance remains as of December 31, 1996.
<PAGE>
The Kodak Building was 100% occupied at December 31, 1996 with
Eastman Kodak occupying 34,600 square feet and Invitrogen
Corporation occupying the remaining 23,147 square feet. The
lease with Invitrogen was scheduled to expire in April 1996;
however, the lease was extended through December 1996.
Invitrogen paid an extension fee of $20,000. Invitrogen remained
in the building until February 1997 paying holdover rent (200% of
December 1996 rent) for January and February 1997. Eastman
Kodak's lease is scheduled to expire February 1998. Discussions
have commenced with Eastman Kodak regarding the possibility of
renewing early and leasing the entire building.
During the year ended December 31, 1996, quarterly distributions
totaling $589,826 and $5,958 were distributed to the Limited
Partners and General Partner, respectively for a total of
$595,784 in cash distributions. Cash distributions were reduced
to $2.00 per unit for the quarter ended March 31, 1996 in order
to build working capital reserves to meet the cash requirements
needed for tenant improvements and lease commissions at 1881 Pine
Street as new leases are signed. In addition, tenant
improvements and lease commissions will be required at Kodak due
to Invitrogen vacating the premises. Management evaluates
reserves and the availability of funds for distribution to
Partners on a continuing basis based on anticipated leasing
activity and cash flows available from the Partnership
investments. Due to the significant amount of the working capital
reserve that was used and will be needed for leasing costs at all
Partnership properties, the Partnership borrowed $1,200,000 from
USAA Real Estate Company, an affiliate of the General Partner,
subsequent to year-end to fund working capital needs in 1997.
The $6,000,000 note payable was thereby increased to $7,200,000
with a decrease in the interest rate from 10% to 9%. The maturity
date of the note was extended from September 1997 to March 1,
1999.
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, 1996, income was generated
from rental income from the income-producing real estate
properties, interest income earned on the funds in temporary
investments and earnings from the joint venture interest.
Expenses incurred during the same periods were associated with
the operation of the Partnership's properties, interest on the
mortgage and note payable and various other costs required for
administration of the Partnership.
<PAGE>
During 1996, 1995 and 1994, one of the Partnership's properties
was a single-tenant property with an absolute triple net lease.
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 this property.
Rental properties decreased as of December 31, 1996 as compared
to December 31, 1995 due to depreciation, offset by tenant
improvements at 1881 Pine Street. Cash and cash equivalents
decreased as of December 31, 1996 as compared to December 31,
1995 due to payment for tenant improvements. Deferred charges
and other assets increased as of December 31, 1996 due to lease
commissions at 1881 Pine Street. Other liabilities increased as
of December 31, 1996 due to prepaid rent at 1881 Pine Street.
Rental income decreased for the year ended 1996 as compared to
the year ended 1995 primarily due to the vacancy at 1881 Pine
Street. The rental rate decrease at Linear due to the 1995
renewal added to the variance for 1996. 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. The single tenant provided
approximately $1.3 million of rental income during 1994. Also
contributing to the decrease in rental income in 1995 was the
rent reduction at Linear. The tenant at Linear renewed at a
monthly 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.
Equity in joint venture earnings increased for the year ended
1996 as compared to the year ended 1995 as a result of an
increase in net income of the joint venture property due to
decreases in parking lot repairs and interest expense. Equity 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.
Lower cash reserves caused the decrease in interest income for
the year ended 1996 as compared to the year ended 1995. Higher
interest rates and an increase in cash reserves accounted for the
increase in interest income for 1995 as compared to 1994.
Depreciation increased for 1995 as compared to 1994 due to
improvements at 1881 Pine Street and Kodak. Other direct
expenses were higher for 1996 as compared to 1995 due to
operating expenses at 1881 Pine Street. 1881 Pine Street
incurred legal fees for new leases, expenses for utilities,
heating and air conditioning repairs and other building service
expenses previously paid by the single tenant. Other direct
<PAGE>
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.
General and administrative expenses increased for the year ended
1996 as compared to the year ended 1995 primarily due to lease
commission expense. Lease commissions were paid for the Linear
Technology lease renewal and the Invitrogen lease renewal at the
Kodak Building. 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 management fee payable to the adviser is based on cash flow
from operations of the Partnership adjusted for cash reserves and
fluctuated accordingly. The decrease in the management fee for
1996 as compared to 1995 was a result of the decrease in revenues
and an increase in operating expenses at 1881 Pine Street.
Interest expense decreased in 1996 and 1995 as compared to 1994
due to principal balance reductions.
Inflation
An increase in inflation could affect the Partnership's
investments through increases in the costs of operating and
maintaining the properties and in various administrative costs of
the Partnership operations. The adverse effect inflation may
have on operating expenses would be offset to some extent by
increases in rental rates charged tenants at the Partnership's
properties. If high occupancy levels are maintained at the
properties, increases in rental income should offset increasing
property operating expenses with minimal effect on operating
income.
<PAGE>
Item 8. Financial Statements and Supplementary Data
<TABLE>
USAA INCOME PROPERTIES IV LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<CAPTION>
1996 1995
ASSETS
<S> <C> <C>
Rental properties, net (notes 3 and 7) $20,743,237 20,864,772
Investment in joint venture (note 4) 5,183,456 5,451,804
Temporary investments, at cost which approximates
market value -
Money market fund 753,756 1,905,792
Cash 33,233 26,928
Cash and cash equivalents 786,989 1,932,720
Accounts receivable 5,600 7,600
Deferred charges and other assets 634,161 525,512
$27,353,443 28,782,408
LIABILITIES AND PARTNERS' EQUITY
Mortgage payable (note 7) $ 1,131,500 1,192,098
Note payable to affiliate (notes 4, 7 and 8) 6,000,000 6,000,000
Accounts payable, including amounts due
to affiliates of $29,082 and $44,045 88,517 57,524
Other liabilities 102,743 18,926
Total liabilities 7,322,760 7,268,548
Partners' equity:
General Partner:
Capital contribution 1,000 1,000
Cumulative net income 43,804 52,678
Cumulative distributions (127,834) (121,876)
(83,030) (68,198)
Limited Partners (60,495 interests):
Capital contributions, net of offering costs 28,432,650 28,432,650
Cumulative net income 4,336,617 5,215,136
Cumulative distributions (12,655,554) (12,065,728)
20,113,713 21,582,058
Total Partners' equity 20,030,683 21,513,860
$27,353,443 28,782,408
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
USAA INCOME PROPERTIES IV LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
Years Ended December 31, 1996, 1995 and 1994
<CAPTION>
1996 1995 1994
INCOME
<S> <C> <C> <C>
Rental income $ 1,227,447 1,687,107 2,522,901
Equity in earnings of joint venture 234,212 215,804 228,842
Interest income, including $23 for 1995 and
$473 for 1994 to affiliate (note 8) 75,275 121,801 50,775
Total income 1,536,934 2,024,712 2,802,518
EXPENSES
Direct expenses, including $55,629, $63,487
and $55,195 to affiliate (note 8) 524,608 317,618 233,111
Depreciation 905,195 959,962 952,743
General and administrative, including
$140,202, $110,121 and $114,820
to affiliates (note 8) 232,296 206,651 245,369
Management fee to affiliate (note 8) 50,134 90,376 91,449
Interest, including $600,000 to
affiliate (notes 7 and 8) 712,094 717,615 722,651
Total expenses 2,424,327 2,292,222 2,245,323
Net income (loss) $ (887,393) (267,510) 557,195
Net income (loss) per limited partnership interest $ (14.52) (4.38) 9.12
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
USAA INCOME PROPERTIES IV LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' EQUITY
Years Ended December 31, 1996, 1995 and 1994
<CAPTION>
General Limited
Partner Partners Total
<S> <C> <C> <C>
Balances at December 31, 1993 $ (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
Net loss (8,874) (878,519) (887,393)
Distributions (5,958) (589,826) (595,784)
Balances at December 31, 1996 $ (83,030) 20,113,713 20,030,683
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
USAA INCOME PROPERTIES IV LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996, 1995 and 1994
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (887,393) (267,510) 557,195
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation 905,195 959,962 952,743
Amortization 37,838 41,764 41,762
Earnings from joint venture (234,212) (215,804) (228,842)
Distributions from joint venture 502,560 558,400 725,920
Loss on early retirement of assets 49,396 -- --
Decrease (increase) in accounts receivable 2,000 1,398 (8,898)
(Increase) decrease in deferred charges
and other assets (146,487) 71,983 79,903
Increase (decrease) in accounts payable,
accrued expenses and other liabilities 114,810 876 (103,481)
Cash provided by operating activities 343,707 1,151,069 2,016,302
Cash flows used in investing activities -
Additions to rental properties (833,056) (215,021) (39,306)
Cash flows from financing activities:
Repayment of mortgage payable (60,598) (55,077) (50,041)
Distributions to partners (595,784) (916,591) (916,592)
Cash used in financing activities (656,382) (971,668) (966,633)
Net (decrease) increase in cash and cash equivalents (1,145,731) (35,620) 1,010,363
Cash and cash equivalents at beginning
of year 1,932,720 1,968,340 957,977
Cash and cash equivalents at end of year $ 786,989 1,932,720 1,968,340
See accompanying notes to financial statements.
</TABLE>
<PAGE>
USAA INCOME PROPERTIES IV LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
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.
The assessment for and measurement of impairment is based
upon the undiscounted future cash flows and fair value,
respectively, of the individual real estate properties.
Based on the provisions of Statement 121, the Partnership's
long-lived assets, real estate and improvements are not
considered impaired. The adoption of Statement 121 had no
financial statement impact.
<PAGE>
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).
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 $36,947, $77,507 and $83,646 less than the
amount due per the lease agreements for the years ended
December 31, 1996, 1995 and 1994, respectively.
No provision or credit for income taxes has been made as the
liability for such taxes is that of the Partners rather than
the Partnership. The Partnership files its tax return on an
accrual basis.
For purposes of the Statements of Cash Flows, all highly
liquid marketable securities that have a maturity at purchase
of three months or less, and money market mutual funds are
considered to be cash equivalents.
Prior financial statements of the Partnership were prepared
on a consolidated basis with USAA Chelmsford Associates Joint
Venture. For all periods presented in the accompanying
financial statements, the Partnership's 55.84% interest in
USAA Chelmsford Associates Joint Venture is accounted for
using the equity method (note 4).
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
$9.75 for 1996 and $15.00 for 1995 and 1994, 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
<PAGE>
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.
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:
1996 1995
Buildings and improvements $ 24,125,536 23,360,493
Land 4,215,016 4,215,016
28,340,552 27,575,509
Less accumulated depreciation (7,597,315) (6,710,737)
$ 20,743,237 20,864,772
4. Investment in Joint Venture
On May 31, 1988, the Partnership entered into the USAA
Chelmsford Associates Joint Venture with USAA Real Estate
Company, the parent company of the Partnership's General
Partner, 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). The
Partnership accounts for its investment in the joint venture
using the equity method.
<PAGE>
Summary financial information for the joint venture as of
December 31, 1996 and 1995 and for the years ended December
31, 1996, 1995 and 1994 follows:
ASSETS
1996 1995
Cash $ 416,888 346,262
Property, net 24,288,391 24,957,807
Accounts receivable 27,115 74,356
Deferred rent and other assets 4,663 64,102
$24,737,057 25,442,527
LIABILITIES AND EQUITY
Liabilities:
Mortgage payable $15,287,583 15,446,788
Accounts payable 167,247 232,946
15,454,830 15,679,734
Equity:
USAA Income Properties IV
Limited Partnership 5,183,456 5,451,804
Co-venturer - affiliate 4,098,771 4,310,989
Total equity 9,282,227 9,762,793
$24,737,057 25,442,527
OPERATIONS
1996 1995 1994
Revenues $ 2,789,770 2,771,135 2,771,501
Operating expenses (28,053) (63,018) (30,885)
Other expenses (9,802) (8,967) (5,484)
Depreciation (929,511) (895,877) (895,877)
Interest expense (1,402,970) (1,416,805) (1,429,437)
Net income $ 419,434 386,468 409,818
Equity in net income:
USAA Income Properties IV
Limited Partnership $ 234,212 215,804 228,843
Co-venturer - affiliate 185,222 170,664 180,975
$ 419,434 386,468 409,818
Cash distributions:
USAA Income Properties IV
Limited Partnership $ 502,560 558,401 725,920
Co-venturer - affiliate 397,440 441,599 574,080
$ 900,000 1,000,000 1,300,000
<PAGE>
5. Minimum Future Rentals
Operating leases with tenants have remaining terms from one
year to five years. Minimum future rentals are cash payments
to be received under non-cancelable leases over the lease
terms and do not necessarily represent rental income under
generally accepted accounting principles. Rental income
reported in the Statements of Operations is recognized under
the operating method, whereby aggregate rentals are reported
on a straight-line basis as income over the life of the
lease. Approximate minimum future rentals are as follows:
1997 $ 1,750,000
1998 1,519,000
1999 1,458,000
2000 1,269,000
2001 984,000
Thereafter 66,000
$ 7,046,000
6. Triple Net Leases
During 1996, 1995 and 1994, the Partnership had ownership
interests in one office building occupied by a single tenant.
The lease agreement between the tenant and the Partnership is
an absolute triple net lease arrangement 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.
7. Mortgage and Note Payable
Mortgage payable at December 31:
1996 1995
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 $5,902,000. $ 1,131,500 $ 1,192,098
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).
<PAGE>
The original unsecured demand note payable had a maturity
date of September 1, 1997 and included monthly interest only
payments at 10%. Subsequent to year-end, the note was
increased to $7,200,000 and was extended to March 1, 1999
with a decrease in the interest rate from 10% to 9%.
Aggregate maturities of mortgages and note payable for 1997
through 2001 are $66,714, $73,426, $7,280,814, $88,925 and
$97,891, respectively.
Cash payments for interest expense were $712,094, $717,615
and $722,651 for 1996, 1995 and 1994, 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.
Through January 1995, 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.
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.
<PAGE>
A summary of transactions with affiliates follows:
<TABLE>
<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.:
1996 $ -- -- -- -- -- --
1995 -- (23) -- -- -- (23)
1994 -- (473) -- -- -- (473)
USAA Real Estate
Company:
1996 109,255 -- 50,134 -- 600,000 759,389
1995 100,634 -- 90,376 -- 600,000 791,010
1994 105,955 -- 91,449 -- 600,000 797,404
Quorum Real Estate
Services Corporation:
1996 33,042 -- 22,587 30,947 -- 86,576
1995 36,559 -- 26,928 9,487 -- 72,974
1994 22,556 -- 32,639 8,865 -- 64,060
(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>
9. Income Taxes
A reconciliation of financial statement net income (loss) to
taxable income (loss) follows:
1996 1995 1994
Net income (loss)-financial statement
basis $ (887,393) (267,510) 557,195
Adjusted by:
Taxable income over financial
statement income - USAA
Chelmsford Associates 72,054 99,037 227,432
Increase in deferred rent 36,947 77,506 83,647
Excess financial statement depreciation
over tax depreciation 166,438 233,836 230,903
Other reconciling items 114,633 (20,780) (46,070)
Taxable income (loss) $ (497,321) 122,089 1,053,107
10. Major Customer Information
During 1996, the Partnership recorded approximately $420,000,
$384,000 and $292,000 of rental income from leases which
represented approximately 34%, 31% and 24% of total rental
income, respectively.
During 1995, the Partnership recorded approximately $543,000,
$464,000, $414,000 and $234,000 of rental income from leases
which represented approximately 32%, 25%, 23% and 14% of
total rental income, respectively.
During 1994, the Partnership recorded approximately
$1,306,000, $561,000 and $408,000 of rental income from
leases which represented approximately 52%, 26% and 16% of
total rental income, respectively.
In addition, see note 4 regarding rental income from the
single tenant of the building owned by USAA Chelmsford
Associates Joint Venture.
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,
1996 and 1995 was $7,105,264 and $7,099,744, 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>
Independent Auditors' Report
The Partners
USAA Income Properties IV Limited Partnership:
We have audited the accompanying balance sheets of USAA
Income Properties IV Limited Partnership as of December 31, 1996
and 1995, and the related statements of operations, partners'
equity, and cash flows for each of the years in the three-year
period ended December 31, 1996. These financial statements are
the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of USAA Income Properties IV Limited Partnership as of December
31, 1996 and 1995, and the results of its operations and its cash
flows for each of the years in the three-year period ended
December 31, 1996, in conformity with generally accepted
accounting principles.
/S/KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
San Antonio, Texas
January 31, 1997, except for
paragraph 10 of note 1, as to
which the date is November 3, 1997
<PAGE>
Part III
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.
A summary of transactions with affiliates follows for
the years ended December 31, 1996, 1995 and 1994:
<PAGE>
<TABLE>
<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.:
1996 $ -- -- -- -- -- --
1995 -- (23) -- -- -- (23)
1994 -- (473) -- -- -- (473)
USAA Real Estate
Company:
1996 109,255 -- 50,134 -- 600,000 759,389
1995 100,634 -- 90,376 -- 600,000 791,010
1994 105,955 -- 91,449 -- 600,000 797,404
Quorum Real Estate
Services Corporation:
1996 33,042 -- 22,587 30,947 -- 86,576
1995 36,559 -- 26,928 9,487 -- 72,974
1994 22,556 -- 32,639 8,865 -- 64,060
(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, Financial Statement Schedule and
Reports on Form 8-K
The following documents are filed as part of this
report.
(a) 1. Financial Statements
The following financial statements, notes to
financial statements and independent auditors'
report are included in Part II Item 8:
Balance Sheets as of
December 31, 1996 and 1995
Statements of Operations
for the Years Ended December 31,
1996, 1995 and 1994
Statements of Partners'
Equity for the Years Ended
December 31, 1996, 1995 and 1994
Statements of Cash Flows
for the Years Ended December 31,
1996, 1995 and 1994
Notes to Financial Statements
Independent Auditors' Report
2.Financial Statement Schedule
Real Estate and Accumulated
Depreciation as of December 31,
1996 (Schedule III)
Independent Auditors' Report
All other schedules have been omitted as the
schedules are not required under the related instructions,
are not applicable, or the information required thereby is
set forth in the financial statements or the notes thereto.
<PAGE>
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 Schedule
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).
(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.
(d) The following USAA Chelmsford Associates Joint Venture
Financial Statements and Financial Statement Schedule are
filed as part of this report:
FINANCIAL STATEMENTS:
Balance Sheets as of December 31, 1996 and 1995
Statements of Income and Joint Venturers' Equity for
the years ended December 31, 1996, 1995 and 1994
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994
Notes to Financial Statements
Independent Auditors' Report on Financial Statements
and Financial Statement Schedule
FINANCIAL STATEMENT SCHEDULE:
Real Estate and Accumulated Depreciation as of
December 31, 1996 (Schedule III)
<PAGE>
<TABLE>
SCHEDULE III USAA INCOME PROPERTIES IV LIMITED PARTNERSHIP
Real Estate and Accumulated Depreciation
December 31, 1996
<CAPTION>
Cost Capitalized
Initial Cost to Subsequent to
Partnership Acquisition
Buildings
Year of Date and 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 1,563,482 --
$ 3,702,416 21,783,763 3,107,112 --
<CAPTION>
Gross Amount at Which
Carried at Close of
Period
Buildings Total Investment Accumulated Related
and Properties Depreciation Mortgages
Description Land Improvements (2)(4) (1) (3) Payable (5)
<S> <C> <C> <C> <C> <C>
Linear Technology
Office Bldg.,
Milpitas, CA 777,000 4,936,164 5,713,164 1,549,380 --
Eastman Kodak
Office Bldg.,
San Diego, CA 2,425,416 5,778,341 8,203,757 2,302,058 1,131,500
1881 Pine Street
Office Bldg.,
St. Louis, MO 1,012,600 13,411,031 14,423,631 3,745,877 --
4,215,016 24,125,536 28,340,552 7,597,315 1,131,500
<PAGE>
Schedule III (continued)
NOTES:
(1) Depreciation is based on a 30 year life, straight-line method for buildings. Tenant improvements
are amortized over the life of the related lease, straight-line method.
(2) Reconciliation of real estate:
Balance at December 31, 1993 $ 27,321,183
Additions during period-improvements 39,306
Balance at December 31, 1994 27,360,489
Additions during period-improvements 215,020
Balance at December 31, 1995 27,575,509
Additions during period-improvements 833,055
Deductions during period-retirements (68,012)
Balance at December 31, 1996 $ 28,340,552
(3) Reconciliation of accumulated depreciation:
Balance at December 31, 1993 $ 4,798,032
Depreciation during period 952,743
Balance at December 31, 1994 5,750,775
Depreciation during period 959,962
Balance at December 31, 1995 6,710,737
Depreciation during period 905,195
Deductions during period-retirements (18,617)
Balance at December 31, 1996 $ 7,597,315
(4) The aggregate cost of real estate owned by the Partnership at December 31, 1996 for Federal
income tax purposes is $28,785,059.
(5) The investment property is pledged as security for the mortgage payable for which there is no
recourse to the Partnership.
</TABLE>
<PAGE>
THE PARTNERS
USAA INCOME PROPERTIES IV LIMITED PARTNERSHIP:
Under date of January 31, 1997, except for paragraph 10 of
note 1, as to which the date is November 3, 1997, we reported
on the balance sheets of USAA Income Properties IV Limited
Partnership as of December 31, 1996 and 1995, and the related
statements of operations, partners' equity, and cash flows for
each of the years in the three-year period ended December 31,
1996. In connection with our audits of the aforementioned
financial statements, we also have audited the related
financial statement schedule as listed in Item 14(a)2. This
financial statement schedule is the responsibility
of the Partnership's management. Our responsibility is to
express an opinion on the financial statement schedule based
on our audits.
In our opinion, such financial statement schedule, when
considered in relation to the basic 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 31, 1997, except
for paragraph 10 of note 1,
as to which the date is
November 3, 1997
<PAGE>
<TABLE>
USAA CHELMSFORD ASSOCIATES JOINT VENTURE
BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<CAPTION>
1996 1995
ASSETS
<S> <C> <C>
Rental property, net $ 24,288,391 24,957,807
Temporary investments, at cost which approximates
market value -
Money market fund 223,756 311,547
Cash 193,132 34,715
Cash and cash equivalents 416,888 346,262
Accounts receivable 27,115 74,356
Deferred charges and other assets 4,663 64,102
$ 24,737,057 25,442,527
LIABILITIES AND JOINT VENTURERS' EQUITY
Mortgage payable $ 15,287,583 15,446,788
Accounts payable and other liabilities, including
amounts due to affiliates of $581 and $271 167,247 232,946
Total liabilities 15,454,830 15,679,734
Joint venturers' equity:
USAA Income Properties IV Limited Partnership:
Capital contribution 9,000,000 9,000,000
Cumulative net income 1,862,384 1,628,172
Cumulative distribution (5,678,928) (5,176,368)
5,183,456 5,451,804
USAA Real Estate Company:
Capital contributions 7,117,011 7,117,011
Cumulative net income 1,472,832 1,287,610
Cumulative distributions (4,491,072) (4,093,632)
4,098,771 4,310,989
Total joint venturers' equity 9,282,227 9,762,793
$ 24,737,057 25,442,527
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
USAA CHELMSFORD ASSOCIATES JOINT VENTURE
STATEMENTS OF INCOME
Years Ended December 31, 1996, 1995 and 1994
<CAPTION>
1996 1995 1994
INCOME
<S> <C> <C> <C>
Rental income $ 2,784,040 2,763,395 2,753,659
Interest income, including $4 for 1995 and
$69 for 1994 from affiliate 34,898 22,247 22,613
Total income 2,818,938 2,785,642 2,776,272
EXPENSES
Direct expenses, including $28,307, $25,874
and $30,479 to affiliate 57,221 77,525 35,656
Depreciation 929,511 895,877 895,877
General and administrative, including
$4,916, $8,251 and $4,992 to affiliates 9,802 8,967 5,484
Interest 1,402,970 1,416,805 1,429,437
Total expenses 2,399,504 2,399,174 2,366,454
Net income $ 419,434 386,468 409,818
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
USAA CHELMSFORD ASSOCIATES JOINT VENTURE
STATEMENTS OF JOINT VENTURERS' EQUITY
Years Ended December 31, 1996, 1995 and 1994
<CAPTION>
USAA Income
Properties USAA Real
IV Limited Estate
Partnership Company Total
<S> <C> <C> <C>
Balances at December 31, 1993 $ 6,291,478 4,975,029 11,266,507
Net income 228,842 180,976 409,818
Distributions (725,920) (574,080) (1,300,000)
Balances at December 31, 1994 5,794,400 4,581,925 10,376,325
Net income 215,804 170,664 386,468
Distributions (558,400) (441,600) (1,000,000)
Balances at December 31, 1995 5,451,804 4,310,989 9,762,793
Net income 234,212 185,222 419,434
Distributions (502,560) (397,440) (900,000)
Balances at December 31, 1996 $ 5,183,456 4,098,771 9,282,227
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
USAA CHELMSFORD ASSOCIATES JOINT VENTURE
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996, 1995 and 1994
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 419,434 386,468 409,818
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 929,511 895,877 895,877
Decrease in receivables and other assets 106,680 41,407 86,699
Increase (decrease) in accounts payable
and other liabilities (65,699) (2,303) 230,864
Net cash provided by operating activities 1,389,926 1,321,449 1,623,258
Cash flows used in investing activities -
Additions to properties (260,095) (70,220) --
Cash flows from financing activities:
Principal repayment (159,205) (145,371) (132,739)
Distributions (900,000) (1,000,000) (1,300,000)
Net cash used in financing activities (1,059,205) (1,145,371) (1,432,739)
Net increase in cash and cash equivalents 70,626 105,858 190,519
Cash and cash equivalents at beginning
of year 346,262 240,404 49,885
Cash and cash equivalents at end of year $ 416,888 346,262 240,404
See accompanying notes to financial statements.
</TABLE>
<PAGE>
USAA CHELMSFORD ASSOCIATES JOINT VENTURE
NOTES TO FINANCIAL STATEMENTS
December 31, 1996, 1995 and 1994
A. Organization, Summary of Significant Accounting Policies and
Other
USAA Chelmsford Associates Joint Venture (the Joint Venture),
is a corporate joint venture formed in 1988. The Joint
Venture is owned 55.84% by USAA Income Properties IV Limited
Partnership (the Partnership) and 44.16% by USAA Real Estate
Company (collectively, the Venturers). The Joint Venture is
engaged solely in the business of real estate investment, and
is the sole beneficiary of a trust which owns an office
building in Chelmsford, Massachusetts. The building has a
single tenant occupying 100% of the available space. As
such, the operations of the joint venture are subject to
changes in the economic environment in the area as well as
the stability of the tenant.
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 property is 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 Joint Venture adopted the provisions
of Financial Accounting Standards Board Statement No. 121,
"Accounting for Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed Of," ("Statement 121").
Statement 121 provides guidance for determining impairment of
long-lived assets utilizing undiscounted future cash flows.
The assessment for and measurement of impairment is based
upon the undiscounted future cash flows and fair value,
respectively, of the individual real estate properties.
Based on the provisions of Statement 121, the Joint Venture's
long-lived assets, real estate and improvements are not
considered impaired. The adoption of Statement 121 had no
financial statement impact.
Depreciation is provided over the estimated useful life of
the property 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>
For purposes of the Statements of Cash Flows, all highly
liquid marketable securities that have a maturity at purchase
of three months or less, and money market mutual funds are
considered to be cash equivalents.
Rental income reported in the Statements of 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 was $59,289, $65,274,
and $65,274 less than the amount due per the lease agreement
for the years ended December 31, 1996, 1995, and 1994,
respectively.
For financial reporting purposes, net income is allocated
based on the ownership interests of the Venturers.
No provision or credit for income taxes has been made as the
liability for such taxes is that of the Venturers. The Joint
Venture is treated as a partnership for tax purposes.
B. Joint Venture Agreement
Pursuant to the terms of the Joint Venture Agreement, cash
flow, if any, attributable to each fiscal quarter shall be
applied and distributed within 45 days after the end of such
quarter.
Generally, all items of income, gain, loss, deduction and
credit from operations will be allocated to the Venturers in
relation to their ownership percentages. Net gain or net
loss from the sale or other disposition of a property shall
be allocated as specified in the Joint Venture Agreement.
C. Rental Property
Rental property at December 31 consisted of the following:
1996 1995
Building and improvements $ 27,201,665 26,941,570
Land 4,805,000 4,805,000
32,006,665 31,746,570
Less accumulated depreciation (7,718,274) (6,788,763)
$ 24,288,391 24,957,807
Such property is pledged as collateral for the mortgage
payable(see Note F).
<PAGE>
D. Minimum Future Rentals
The operating lease with the single tenant has a remaining
term of approximately four years. Minimum future rentals are
cash payments to be received under the non-cancelable lease
over the lease term and do not necessarily represent rental
income under generally accepted accounting principles.
Approximate minimum future rentals are as follows:
1997 $ 2,000,000
1998 2,000,000
1999 2,000,000
2000 833,000
2001 --
Thereafter --
$ 6,833,000
E. Triple Net Lease
During 1996, 1995 and 1994, the lease agreement was an
absolute triple net lease arrangement 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
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.
F. Mortgage Payable
Mortgage payable at December 31:
1996 1995
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 approximately
$24,288,000. $ 15,287,583 15,446,788
Maturities of the mortgage payable for 1997 through 2001 are
$174,356, $190,948, $209,120, $229,021 and $14,484,138,
respectively.
Cash payments for interest expense were $1,402,970,
$1,416,805 and $1,429,437 for 1996, 1995 and 1994,
respectively.
<PAGE>
G. Transactions with Affiliates
Through January 1995, a portion of the Joint Venture's
working capital reserve and other available funds were
invested in USAA Mutual Fund, Inc. and earned interest
thereon at market rates.
Quorum Real Estate Services Corporation (also known as USAA
Realty Company), an affiliate of the General Partner of the
Partnership, provides property management and leasing
services for the property 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
of Expenses (1) Income Fees Total
<S> <C> <C> <C> <C>
USAA Mutual
Fund, Inc.:
1996 $ -- -- -- --
1995 -- (4) -- (4)
1994 -- (69) -- (69)
USAA Real Estate
Company:
1996 4,916 -- -- 4,916
1995 8,251 -- -- 8,251
1994 4,992 -- -- 4,992
Quorum Real Estate
Services Corporation:
1996 -- -- 28,307 28,307
1995 -- -- 25,874 25,874
1994 -- -- 30,479 30,479
(1) Reimbursement of expenses represents amounts paid or accrued as reimbursement of expenses
incurred on behalf of the Joint Venture at actual cost and does not include any mark-up or
items normally considered as overhead.
</TABLE>
<PAGE>
H. 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 the mortgage
payable at December 31, 1996 and 1995 was $14,807,093
and $14,578,164, 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>
<TABLE>
SCHEDULE III USAA CHELMSFORD ASSOCIATES JOINT VENTURE
Real Estate and Accumulated Depreciation
December 31, 1996
<CAPTION>
Cost Capitalized
Initial Cost to Subsequent to
Joint Venture Acquisition
Buildings
Year of Date and Carrying
Construction Acquired Description Land Improvements Improvements Costs
<S> <C> <C> <C> <C> <C> <C>
1987 May 31, 1988 Apollo Computer
Research and
Development
Headquarters
Building,
Chelmsford, MA 4,800,000 26,422,889 783,775 --
<CAPTION>
Gross Amount at Which
Carried at Close of
Period
Buildings Total Investment Accumulated Related
and Properties Depreciation Mortgages
Description Land Improvements (2)(4) (1) (3) Payable (5)
<S> <C> <C> <C> <C> <C> <C>
Apollo Computer
Research and
Development
Headquarters
Building,
Chelmsford, MA 4,805,000 27,201,665 32,006,665 7,718,274 15,287,583
<PAGE>
Schedule III (continued)
NOTES:
(1) Depreciation is based on a 30 year life, straight-line method for buildings.
Tenant improvements are amortized over the life of the related lease,
straight-line method.
(2) Reconciliation of real estate:
Balance at December 31, 1993 $ 31,676,349
Additions during period-improvements --
Balance at December 31, 1994 31,676,349
Additions during period-improvements 70,221
Balance at December 31, 1995 31,746,570
Additions during period-improvements 260,095
Balance at December 31, 1996 $ 32,006,665
(3) Reconciliation of accumulated depreciation:
Balance at December 31, 1993 $ 4,997,009
Depreciation during period 895,877
Balance at December 31, 1994 5,892,886
Depreciation during period 895,877
Balance at December 31, 1995 6,788,763
Depreciation during period 929,511
Balance at December 31, 1996 $ 7,718,274
(4) The aggregate cost of real estate owned by the joint venture at December 31, 1996
for Federal income tax purposes is $32,028,062.
(5) The investment property is pledged as security for the mortgage payable for which there is no
recourse.
</TABLE>
<PAGE>
Independent Auditors' Report
The Joint Venturers
USAA Chelmsford Associates Joint Venture:
We have audited the accompanying balance sheets of USAA
Chelmsford Associates Joint Venture as of December 31, 1996 and
1995, and the related statements of income, joint venturers'
equity, and cash flows for each of the years in the three-year
period ended December 31, 1996. These financial statements are
the responsibility of the Joint Venture's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position
of USAA Chelmsford Associates Joint Venture as of December 31,
1996 and 1995, and the results of its operations and its cash
flows for each of the years in the three-year period ended
December 31, 1996, in conformity with generally accepted
accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, present fairly, in
all material respects, the information set forth therein.
/S/KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
San Antonio, Texas
January 31, 1997
<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 Executive Officer
and Director
Date: November 3, 1997
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
/s/Edward B. Kelley Date: November 3, 1997
Edward B. Kelley
Director, Chairman of the Board,
President and Chief Executive Officer
of the General Partner
/s/T. Patrick Duncan Date: November 3, 1997
T. Patrick Duncan
Director, Vice Chairman,
Senior Vice President - Real Estate
Operations of the General Partner
/s/Randal R. Seewald Date: November 3, 1997
Randal R. Seewald
Director, Vice President,
Secretary and Legal Counsel
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 786,989
<SECURITIES> 0
<RECEIVABLES> 5,600
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 28,340,552
<DEPRECIATION> 7,597,315
<TOTAL-ASSETS> 27,353,443
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 20,030,683
<TOTAL-LIABILITY-AND-EQUITY> 27,353,443
<SALES> 0
<TOTAL-REVENUES> 1,227,447
<CGS> 0
<TOTAL-COSTS> 1,429,803
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 712,094
<INCOME-PRETAX> (887,393)
<INCOME-TAX> 0
<INCOME-CONTINUING> (887,393)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (887,393)
<EPS-PRIMARY> (14.52)
<EPS-DILUTED> 0
</TABLE>
