UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended December 31, 1996
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number 0-16171
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
<PAGE>
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
1996 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, 1996, the building was 100% leased under a triple
net lease by Linear Technology Corporation as its corporate
headquarters under a lease which expires in 2000. As of December
31, 1996, none of the $168,500 tenant improvement allowance from
the 1995 renewal had been expended. Linear Technology provided
approximately $379,000 of annual rental income to the Partnership
in 1996, $459,000 during 1995 and $561,000 during 1994, which
represented approximately 10% of total Partnership rental income
for 1996 and 11% for 1995 and 1994.
<PAGE>
The Linear Technology Building is located in the Milpitas
submarket of the Silicon Valley. This submarket had approximately
255,000 square feet of available research and development ("R & D")
space as of December 31, 1996, with a vacancy rate of approximately
2.5% compared to a 2.7% vacancy rate as of December 31, 1995.
The Eastman Kodak Building is located in Sorrento Valley,
San Diego, California near the intersection of Interstates 5 and
805. At December 31, 1996, the building was 100% occupied, 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 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. Discussions have commenced with Eastman Kodak regarding the
possibility of early lease renewal and leasing the entire building.
The Kodak Building is located in the Sorrento Valley R & D
submarket. The vacancy rate in the submarket was approximately 3%
as of the end of 1996 compared to approximately 9.5% as of the end
of 1995. Total inventory in the Sorrento Valley R & D submarket
was approximately 1.3 million square feet with approximately 37,000
square feet available at the end of 1996.
The 1881 Pine Street Office Building is located in St.
Louis, Missouri near Interstate 44, the Gateway Arch, and Union
Station. During 1996 two leases were signed at this property to
end the year with 82% of the 106,340 square foot property leased.
During the third quarter, a five-year lease was signed with
Sherwood Medical Company. 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 provides for 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 of approximately $259,600 was
provided which was paid out of the working capital reserve of the
Partnership.
During the fourth quarter, 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.
<PAGE>
The 1881 Pine Street property is located in the Central
Business District ("CBD") of the St. Louis office market. The
vacancy rate in the CBD at the end of 1996 was approximately 20% as
compared to approximately 18% at the end of 1995. Total inventory
in the CBD was approximately 12.9 million square feet with
approximately 2.5 million square feet available.
Total inventory in the overall St. Louis office market was
approximately 35.3 million square feet at the end of 1996 with
approximately 4.8 million square feet available for lease. The
vacancy rate in this market was approximately 13% at December 31,
1996 as compared to approximately 12% at December 31, 1995.
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 under
a triple net lease 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
approximately $.57 per square foot for the 291,424 square foot
building began January 1997. This rate is lower than the rate paid
in 1996 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.
During 1996, Hewlett-Packard used approximately $260,000 of the
allowance for tenant improvements. Approximately $197,000 remains
of the tenant improvement allowance as of December 31, 1996. This
tenant provided approximately $2,763,000 of annual rental income to
the Partnership in 1996, $2,759,000 in 1995 and $2,761,000 in 1994
which represented approximately 72% of total Partnership rental
income for 1996, 65% for 1995 and 54% for 1994.
The Apollo Computer Building is located within the 495 West
submarket of the 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 3.6 million square feet of
office space with an occupancy rate of approximately 93% as of
December 31, 1996 compared to an occupancy rate of approximately
87% as of the end of 1995. Total inventory of R & D space was
approximately 23.8 million square feet as of the end of 1996 with
an occupancy of approximately 89% compared to an occupancy rate of
approximately 91% as of the end of 1995.
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.
<PAGE>
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, 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 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.
<PAGE>
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, 1996, there were 2,995 Limited Partners
of the Partnership, owning an aggregate of 60,495 Interests.
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. These distributions represented a
return of capital for both the Limited Partners and General
Partner.
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.
Future cash distributions to Limited Partners are currently
anticipated.
<PAGE>
<TABLE>
Item 6. Selected Financial Data
USAA INCOME PROPERTIES IV LIMITED PARTNERSHIP
SELECTED FINANCIAL DATA
Years Ended December 31, 1996, 1995, 1994, 1993 and 1992
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Rental Income $ 3,815,441 4,276,734 5,119,505 5,126,096 5,261,380
Interest Income 110,173 144,048 73,388 35,848 43,819
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 46,907,044 48,773,131 50,430,042 51,237,941 52,386,006
Total Mortgages and Note
Payable at Period End 22,419,083 22,638,886 22,839,334 23,022,114 23,188,785
(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 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, 1996, the Partnership had cash of $226,365 and
temporary investments of $977,512. 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 working capital reserve. 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 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.
<PAGE>
During 1996, 1995 and 1994, 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 properties decreased as of December 31, 1996 as compared
to December 31, 1995 due to depreciation, offset by tenant
improvements at 1881 Pine Street and Apollo. 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.
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.
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
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 were parking lot repairs at the Apollo Building
which was part of the tenant improvement allowance.
<PAGE>
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.
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.
Minority interest 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. 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.
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>
<TABLE>
Item 8. Financial Statements and Supplementary Data
USAA INCOME PROPERTIES IV LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<CAPTION>
1996 1995
<S> <C> <C>
ASSETS
Rental properties, net (notes 3, 4 and 7) $ 45,409,746 46,218,351
Temporary investments, at cost which approximates
market value -
Money market fund 977,512 2,217,339
Cash 226,365 61,643
Cash and cash equivalents 1,203,877 2,278,982
Accounts receivable 32,715 81,956
Deferred charges and other assets 260,706 193,842
$ 46,907,044 48,773,131
LIABILITIES AND PARTNERS' EQUITY
Mortgages payable (note 7) $ 16,419,083 16,638,886
Note payable to affiliate (notes 4, 7 and 8) 6,000,000 6,000,000
Accounts payable, including amounts due
to affiliates of $29,663 and $44,323 89,097 57,801
Other liabilities 269,410 251,595
Total liabilities 22,777,590 22,948,282
Minority interest in joint venture (note 4) 4,098,771 4,310,989
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
$ 46,907,044 48,773,131
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
USAA INCOME PROPERTIES IV LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1996, 1995 and 1994
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
INCOME
Rental income $ 3,815,441 4,276,734 5,119,505
Less direct expenses, including
depreciation of $1,852,360,
$1,873,494 and $1,866,275 2,238,144 2,094,869 1,977,988
Net operating income (note 6) 1,577,297 2,181,865 3,141,517
Interest income (note 8) 110,173 144,048 73,388
Total income 1,687,470 2,325,913 3,214,905
EXPENSES
General and administrative (note 8) 224,443 197,963 233,198
Management fee (note 8) 50,134 90,376 91,449
Interest (notes 7 and 8) 2,115,064 2,134,420 2,152,088
Minority interest in joint venture
earnings (note 4) 185,222 170,664 180,975
Total expenses 2,574,863 2,593,423 2,657,710
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 consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
USAA INCOME PROPERTIES IV LIMITED PARTNERSHIP
CONSOLIDATED 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 consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
USAA INCOME PROPERTIES IV LIMITED PARTNERSHIP
CONSOLIDATED 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 1,852,360 1,873,494 1,866,275
Amortization 20,184 24,108 24,108
Loss on early retirement of assets 49,395 -- --
Decrease (increase) in accounts receivable 49,241 (18,451) 12,959
Decrease (increase) in deferred charges
and other assets (87,048) 133,239 144,745
Increase (decrease) in accounts payable,
accrued expenses and other liabilities 49,111 (1,427) 127,383
Minority interest in joint venture earnings 185,222 170,664 180,975
Cash provided by operating activities 1,231,072 1,914,117 2,913,640
Cash flows used in investing activities -
Additions to rental properties (1,093,150) (285,241) (39,306)
Cash flows from financing activities:
Repayment of mortgages payable (219,803) (200,448) (182,780)
Distributions to co-venturer (397,440) (441,599) (574,080)
Distributions to partners (595,784) (916,591) (916,592)
Cash used in financing activities (1,213,027) (1,558,638) (1,673,452)
Net increase (decrease) in cash and cash equivalents (1,075,105) 70,238 1,200,882
Cash and cash equivalents at beginning
of year 2,278,982 2,208,744 1,007,862
Cash and cash equivalents at end of year $ 1,203,877 2,278,982 2,208,744
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
USAA INCOME PROPERTIES IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED 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.
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
$96,237, $142,781 and $148,920 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 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 $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 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.
<PAGE>
3. Rental Properties
Rental properties at December 31 consisted of the following:
1996 1995
Buildings and improvements $ 51,856,859 50,831,721
Land 9,020,016 9,020,016
60,876,875 59,851,737
Less accumulated depreciation (15,467,129) (13,633,386)
$ 45,409,746 46,218,351
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, 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
Account 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 (28,054) (63,018) (30,885)
Other expenses (9,802) (8,967) (5,484)
Depreciation (929,510) (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
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:
1997 $ 3,750,000
1998 3,519,000
1999 3,458,000
2000 2,102,000
2001 984,000
Thereafter 66,000
$13,879,000
6. Triple Net Leases
During 1996, 1995 and 1994, 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:
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
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 $24,667,000. 15,287,583 15,446,788
$ 16,419,083 16,638,886
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 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 $241,000, $264,374, $7,489,934, $317,946 and
$14,582,029 respectively.
Cash payments for interest expense were $2,115,064, $2,134,420
and $2,152,088 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.
<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.
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 -- (27) -- -- -- (27)
1994 -- (542) -- -- -- (542)
USAA Real Estate
Company:
1996 114,171 -- 50,134 -- 600,000 764,305
1995 108,885 -- 90,376 -- 600,000 799,261
1994 110,947 -- 91,449 -- 600,000 802,396
Quorum Real Estate
Services Corporation:
1996 33,042 -- 50,894 30,947 -- 114,883
1995 36,559 -- 52,802 9,487 -- 98,848
1994 22,556 -- 63,118 8,865 -- 94,539
(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 (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 $2,763,000
and $379,000 of rental income from single-tenant leases which
represented approximately 72% and 10% of total rental income,
respectively.
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.
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 $21,767,785 and $21,677,908, 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 consolidated balance sheets of
USAA Income Properties IV Limited Partnership and majority-owned
joint venture as of December 31, 1996 and 1995, 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, 1996. 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, 1996 and 1995, and
the results of their operations and their 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
<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, 1997, the directors and executive
officers of the General Partner were as follows:
POSITION WITH
NAME GENERAL PARTNER
Edward B. Kelley Chairman, President,
Chief Executive Officer and
Director
T. Patrick Duncan Vice Chairman
Senior Vice President -
Real Estate Operations and
Director
Randal R. Seewald Vice President, Secretary,
Legal Counsel and Director
Martha J. Barrow Vice President -
Administration and
Finance/Treasurer
S. Wayne Peacock Vice President -
Portfolio Management
David A. Rosales Assistant Vice President -
Controller
Susan T. Wallace Assistant Vice President -
Acquisitions and Dispositions
David M. Holmes Assistant Vice President -
Capital Investments
Stephen S. King Assistant Vice President -
Western Region
<PAGE>
All of the foregoing directors and executive officers
have been elected to serve one-year terms until the annual
meeting of the General Partner.
There are no arrangements or understandings between or
among any of said directors or executive officers to be elected
or selected as such, nor are there any family relationships among
any of the foregoing directors and executive officers. The
foregoing directors and executive officers are also officers
and/or directors of various affiliated companies of the General
Partner.
The age and business experience of each of the directors
and executive officers of the General Partner is as follows:
Edward B. Kelley, 56, joined USAA in April 1989 and is
Vice Chairman, President, Chief Executive Officer and Director of
USAA Real Estate Company and Chairman, President, Chief Executive
Officer and Director of USAA Real Estate Development Company,
USAA Real Estate Management Company, Quorum Real Estate Services
Corporation, USAA Properties Fund, Inc., USAA Investors I, Inc.,
USAA Investors II, Inc., USAA Properties II, Inc., USAA
Properties III, Inc., USAA Properties IV, Inc., La Paz, Inc.,
USAA Real Estate Equities, Inc., Alhambra Gables One, Inc., L. A.
Wilshire One, Inc., USAA Real Estate - Midwest, Inc., and Las
Colinas Management Company. He also serves as Chief Executive
Officer, President and Director of Fiesta Texas Showpark, Inc.,
La Cantera Development Company and La Cantera Hospitality, Inc.
Mr. Kelley is also Chairman of the Board, Chief Executive Officer
and Director of USAA Equity Advisors, Inc. Mr. Kelley serves as
President and Director of USAA Health Services, Inc. All of the
previously named companies are affiliates of the General Partner.
He graduated from St. Mary's University of San Antonio, Texas
with a Bachelor of Business Administration Degree in Finance in
1964 and was awarded a Master of Business Administration Degree,
in Finance, by Southern Methodist University, Dallas, Texas in
1967. Mr. Kelley was employed by Barshop Enterprises, Inc., of
San Antonio, Texas from July 1980 until April 1989 where he was
President and an Advisory Director of Barshop Enterprises, Inc.
and its corporate subsidiaries. The Barshop group of companies
is engaged in the development, management and ownership of
commercial real estate properties in San Antonio and other Texas
cities. He is past Chairman of the Board and a member of the
Executive Committee of the Greater San Antonio Chamber of
Commerce; past member of the Board of Directors, Executive
Committee, and past President of the San Antonio chapter of the
National Association of Industrial and Office Parks; past member
of the Board of Directors of the San Antonio Economic Development
Foundation, and past Chairman of the Board of Trustees of St.
Mary's University and its Executive Committee. Mr. Kelley is a
member of the Board of Directors and Executive Committee, Vice
President of the Board of Directors, and Chairman of the 1994
Friends of Scouting Bexar County Campaign, as well as the
President of the Alamo Area Council of Boy Scouts of America;
member of the Board of Trustees of St. Mary's University; member
<PAGE>
of the Board of Trustees of the Baptist Children's Home of San
Antonio; member of the Board of Directors of the San Antonio
Economic Development Foundation; member of Board of Trustees for
the United Way of San Antonio and Bexar County; and a member of
the Board of Directors of the American Industrial Properties REIT
(AIP).
T. Patrick Duncan, 47, is Senior Vice President - Real
Estate Operations and Director of USAA Real Estate Company, USAA
Real Estate Equities, Inc. and USAA Health Services, Inc. He
also serves as Senior Vice President, Director and Vice Chairman
of USAA Real Estate Development Company, USAA Real Estate
Management Company, Quorum Real Estate Services Corporation, USAA
Properties Fund, Inc., USAA Investors I, Inc., USAA Investors II,
Inc., USAA Properties II, Inc., USAA Properties III, Inc., USAA
Properties IV, Inc., La Paz, Inc., USAA Equity Advisors, Inc.,
Alhambra Gables One, Inc., L. A. Wilshire One, Inc., USAA Real
Estate-Midwest, Inc., and Las Colinas Management Company. All of
the previously named companies are affiliates of the General
Partner. He is a 1972 graduate of the University of Arizona and
was awarded the Bachelor of Science Degree with a dual major in
Accounting and Finance. Prior to joining USAA in 1986, Mr.
Duncan was an audit manager with Deloitte Touche and Company and
Comptroller of Trammell Crow Company in Dallas, Texas. Mr.
Duncan is a Certified Public Accountant and holds a Texas Real
Estate Brokers License. He holds memberships in the Texas and
Arizona State Boards of Accounting, the Texas and Arizona State
Societies of Certified Public Accountants, the International
Council of Shopping Centers, the Urban Land Institute, The
National Association of Real Estate Investment Managers and the
Pension Real Estate Association. Mr. Duncan serves on the Board
of Trustees and is Chairman of the Finance Committee of the
Daughters of Charity; and Board member of the North San Antonio
Chamber of Commerce, as well as Chairman of its Governmental
Affairs Council. Mr. Duncan is a Board member of Meridian
Industrial Trust and American Industrial Trust, two public REITs
traded on the New York Stock Exchange. Mr. Duncan serves on
various committees of these two entities.
Randal R. Seewald, 43, began his career with USAA in
1976, and is currently Vice President, Director, Secretary and
Legal Counsel of USAA Real Estate Development Company, USAA Real
Estate Management Company, USAA Properties Fund, Inc., USAA
Properties II, Inc., USAA Properties III, Inc., USAA Properties
IV, Inc., USAA Investors I, Inc., USAA Investors II, Inc.,
Alhambra Gables One, Inc., L. A. Wilshire One, Inc., Quorum Real
Estate Services Corporation, USAA Real Estate-Midwest, Inc., La
Paz, Inc., USAA Equity Advisors, Inc., USAA Health Services,
<PAGE>
Inc., and Las Colinas Management Company. He is also Vice
President, Secretary and Legal Counsel of USAA Real Estate
Company and USAA Real Estate Equities, Inc. Mr. Seewald serves
as Vice President, Legal Counsel, Treasurer and Secretary of
Fiesta Texas Showpark, Inc., La Cantera Development Company and
La Cantera Hospitality, Inc. All of the previously named
companies are affiliates of the General Partner. Mr. Seewald
holds a Bachelor of Business Administration from Texas A&M
University and a J.D. from St. Mary's University School of Law.
He is a member of the State Bar of Texas, the American Bar
Association, the San Antonio Bar Association, and the American
Corporate Counsel Association.
Martha J. Barrow, 49, is Vice President, Administration
and Finance, and Treasurer of USAA Real Estate Company, Alhambra
Gables One, Inc., L.A. Wilshire One, Inc., La Paz, Inc., Las
Colinas Management Company, Quorum Real Estate Services
Corporation, USAA Health Services, Inc., USAA Investors I, Inc.,
USAA Investors II, Inc., USAA Properties Fund, Inc., USAA
Properties II, Inc., USAA Properties III, Inc., USAA Properties
IV, Inc., USAA Real Estate-Midwest, Inc., USAA Real Estate
Development Company, USAA Real Estate Equities, Inc., and USAA
Real Estate Management Company. Ms. Barrow serves as President
of USAA Equity Advisors, Inc. All of the previously named
companies are affiliates of the General Partner. Ms. Barrow
joined USAA in June 1983. Prior to her joining USAA, she served
as a Tax Accountant of La Quinta Motor Inns, Inc. and as Senior
Accountant with NL Industries. She is a Certified Public
Accountant in the state of Texas and is a member of the Texas
Society of Certified Public Accountants and the American
Institute of Certified Public Accounts. She is a license holder
for Securities Registration Series 7, Series 63, and Series 24.
Ms. Barrow holds a Bachelor of Business Administration in
Accounting from Pan American University and an Master of Business
Administration from St. Mary's University. She is a member of
the National Association of Real Estate Investment Managers
(NAREIM), the National Council of Real Estate Investment
Fiduciaries (NCREIF), and the American Real Estate Society
(ARES).
S. Wayne Peacock, 38, is Vice President, Portfolio
Management of USAA Real Estate Company, USAA Properties Fund,
Inc., USAA Properties II, Inc., USAA Properties III, Inc., USAA
Properties IV, Inc., USAA Investors I, Inc., USAA Investors II,
Inc., Quorum Real Estate Services Corporation, USAA Real Estate
Equities, Inc., Alhambra Gables One, Inc., L. A. Wilshire One,
Inc., USAA Equity Advisors, Inc., USAA Real Estate Development
Company, and USAA Real Estate-Midwest, Inc. He is also a
Director of Quorum Real Estate Services Corporation. All of the
previously named companies are affiliates of the General Partner.
Mr. Peacock joined USAA in January 1992. Mr. Peacock has
previous real estate experience with Coldwell Banker and Merrill
Lynch. He graduated in 1981 from Tulane University, New Orleans,
Louisiana, where he received a Bachelor of Arts degree in
Economics. Mr. Peacock is a Certified Commercial Investment
<PAGE>
Manager (CCIM). He holds memberships in the San Antonio Board of
Realtors and CCIM.
David A. Rosales, 40, is Assistant Vice President -
Controller for USAA Real Estate Company, Alhambra Gables One,
Inc., L.A. Wilshire One, Inc., La Paz, Inc., Las Colinas
Management Company, USAA Equity Advisors, Inc., USAA Investors I,
Inc., USAA Investors II, Inc., USAA Properties Fund, Inc., USAA
Properties II, Inc., USAA Properties III, Inc., USAA Properties
IV, Inc., USAA Real Estate - Midwest, Inc., USAA Real Estate
Development Company, USAA Real Estate Equities, Inc., and USAA
Real Estate Management Company. He is also Assistant Vice
President, Controller of Quorum Real Estate Services Corporation.
All of the previously named companies are affiliates of the
General Partner. Mr. Rosales joined USAA in September 1983. He
holds a Bachelor of Business Administration from St. Mary's
University and an Master of Business Administration from Our Lady
of the Lake University. He is a Certified Public Accountant in
the state of Texas and holds memberships in the Texas Society of
CPAs, the San Antonio chapter of CPAs and the American Institute
of CPAs. Mr. Rosales also holds memberships in the National
Association of Real Estate Companies and the National Council of
Real Estate Investments Fiduciaries. He serves as Chairman of
the Board of Communities in Schools-San Antonio, Inc.
Susan T. Wallace, 42, is Assistant Vice President, Real
Estate Investments for USAA Real Estate Company, USAA Properties
Fund, Inc., USAA Properties II, Inc., USAA Properties III, Inc.,
USAA Properties IV, Inc., USAA Investors I, Inc., USAA Investors
II, Inc., USAA Equity Advisors, Inc., Alhambra Gables One, Inc.,
L. A. Wilshire One, Inc., USAA Real Estate-Midwest, Inc., and
USAA Real Estate Equities, Inc. All of the previously named
companies are affiliates of the General Partner. Ms. Wallace
attended Bowling Green State University in Bowling Green, Ohio
and the University of Cincinnati in Cincinnati, Ohio. From
December 1983 until September 1988 she served as Director with
USAA Real Estate Company where she was responsible for the
identification of equity investments and acquisition of the
identified investments. Prior to joining USAA Real Estate
Company, she was Project Director and Division Manager for
Gibraltar Savings Association of Houston, Texas. Ms. Wallace
holds a Texas Real Estate License, is a graduate of the Realtors
Institute and is a member of the San Antonio and Texas Board of
Realtors, the National Association of Realtors, the National
Association of Real Estate Investment Managers and the
International Association of Corporate Real Estate Executives.
Ms. Wallace serves on the Board of Governors for the Affordable
Housing Investors Council.
David M. Holmes, 36, is Assistant Vice President,
Capital Investments for USAA Real Estate Company, USAA Properties
Fund, Inc., USAA Properties II, Inc., USAA Properties III, Inc.,
USAA Properties IV, Inc., USAA Investors I, Inc., USAA Investors
II, Inc., USAA Equity Advisors, Inc., Alhambra Gables One, Inc.,
L.A. Wilshire One, Inc., and USAA Real Estate-Midwest, Inc. All
of the previously named companies are affiliates of the General
<PAGE>
Partner. Mr. Holmes joined USAA in May 1985. His
responsibilities include new property acquisition and capital
market activities. Mr. Holmes currently oversees over 2 million
square feet of office and industrial development. He also acts
as the primary contact for real estate securitization
transactions and coordinates contact with banking relationships,
alliance partners and other third party development or financing
sources. Prior to joining USAA, Mr. Holmes was a tax consultant
for Touche Ross & Company in San Antonio. He is a 1982 graduate
of Trinity University, San Antonio, Texas, where he received a
Bachelor of Business Administration with a concentration in
Accounting and Finance and is a Certified Public Accountant. He
has served on the Board of Directors of Big Brothers and Sisters
of San Antonio and as a member of the Finance Committee of the
San Antonio Public Library.
Stephen S. King, 40, is Assistant Vice President -
Western Region of USAA Real Estate Company, L.A. Wilshire One,
Inc., La Paz, Inc., USAA Investors I, Inc., USAA Properties III,
Inc., and USAA Properties IV, Inc. All of the previously named
companies are affiliates of the General Partner. Mr. King joined
USAA in July 1993. Prior to joining USAA, Mr. King had fifteen
years of professional real estate development, construction and
management experience. He graduated in 1978 from Texas A&M
University, where he received a Bachelor of Arts in Economics.
Mr. King is a licensed California Broker, a member of the
Institute of Real Estate Management (IREM), the Building Owners
and Managers Association (BOMA), the National Association of
Realtors, and the Lincoln Club of Orange County.
<PAGE>
Item 11. Executive Compensation
The directors and officers of the General Partner of the
Partnership receive no current or proposed remuneration from the
Partnership or the General Partner.
The General Partner is entitled to receive a share of
cash distributions, profits and losses and sales and refinancing
proceeds as described under the 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, 1996, the General Partner received cash
distributions of $5,958.
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 6,110 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>
A summary of transactions with affiliates follows for the
years ended December 31, 1996, 1995 and 1994:
<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 -- (27) -- -- -- (27)
1994 -- (542) -- -- -- (542)
USAA Real Estate
Company:
1996 114,171 -- 50,134 -- 600,000 764,305
1995 108,885 -- 90,376 -- 600,000 799,261
1994 110,947 -- 91,449 -- 600,000 802,396
Quorum Real Estate
Services Corporation:
1996 33,042 -- 50,894 30,947 -- 114,883
1995 36,559 -- 52,802 9,487 -- 98,848
1994 22,556 -- 63,118 8,865 -- 94,539
(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, 1996 and 1995
Consolidated Statements of Operations
for the Years Ended December 31,
1996, 1995 and 1994
Consolidated Statements of Partners'
Equity for the Years Ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows
for the Years Ended December 31,
1996, 1995 and 1994
Notes to Consolidated Financial Statements
Independent Auditors' Report
2. Consolidated 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 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 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).
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, 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 --
1987 May 31, 1988 Apollo Computer
Research and
Development
Headquarters
Building,
Chelmsford, MA 4,800,000 26,952,547 783,775 --
$ 8,502,416 48,736,310 3,890,887 --
<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 1,549,380 --
1987 Oct. 26, 1987 Eastman Kodak
Office Bldg.,
San Diego, CA 2,425,416 5,778,341 8,203,757 2,302,058 1,131,500
1987 Dec. 31, 1987 1881 Pine Street
Office Bldg.,
St. Louis, MO 1,012,600 13,411,031 14,423,631 3,745,877 --
1987 May 31, 1988 Apollo Computer
Research and
Development
Headquarters
Building,
Chelmsford, MA 4,805,000 27,731,323 32,536,323 7,869,814 15,287,583
9,020,016 51,856,859 60,876,875 15,467,129 16,419,083
<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.
<S> <C>
(2) Reconciliation of real estate:
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
Additions during period-improvements 1,093,150
Deductions during period-retirements (68,012)
Balance at December 31, 1996 $ 60,876,875
(3) Reconciliation of accumulated depreciation:
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
Depreciation during period 1,852,360
Deductions during period-retirements (18,617)
Balance at December 31, 1996 $ 15,467,129
(4) The aggregate cost of real estate owned by the Partnership at December 31, 1996 for Federal
income tax purposes is $60,813,121, including $32,028,062 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 31, 1997, we reported on the consolidated
balance sheets of USAA Income Properties IV Limited Partnership
and majority-owned joint venture as of December 31, 1996 and
1995, 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, 1996. 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 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 Operating Officer
and Director
Date: March 25, 1997
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
/s/Edward B. Kelley Date: March 25, 1997
Edward B. Kelley
Director, Chairman of the Board,
President and Chief Operating Officer
of the General Partner
/s/T. Patrick Duncan Date: March 25, 1997
T. Patrick Duncan
Director, Vice Chairman,
Senior Vice President - Real Estate
Operations of the General Partner
/s/Randal R. Seewald Date: March 25, 1997
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 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).
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,203,877
<SECURITIES> 0
<RECEIVABLES> 32,715
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 60,876,875
<DEPRECIATION> 15,467,129
<TOTAL-ASSETS> 46,907,044
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 20,030,683
<TOTAL-LIABILITY-AND-EQUITY> 46,907,044
<SALES> 0
<TOTAL-REVENUES> 3,815,441
<CGS> 0
<TOTAL-COSTS> 2,238,144
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,115,064
<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>
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
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.
<PAGE>
"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)
<PAGE>
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
<PAGE>
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
<PAGE>
proceeds, computed as follows: 80% - (50 x .1625%) =
71.875%. As indicated under the "Estimated Use of Proceeds"
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.
<PAGE>
(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
<PAGE>
from each residential 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
all Interests of the product computed in (i). The ultimate amount
<PAGE>
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.
<PAGE>
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.
Net loss from the sale or other disposition of a Property is
generally allocated between the Limited Partners and the General
Partner as follows:
<PAGE>
(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
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
<PAGE>
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.
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.
