10KSB 1 sp4.txt SP4 FORM 10-KSB--Annual or Transitional Report Under Section 13 or 15(d) FORM 10-KSB [X] Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] For the fiscal year ended December 31, 2001 [ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] For the transition period _________to_________ Commission file number 0-10884 SHELTER PROPERTIES IV (Name of small business issuer in its charter) South Carolina 57-0721760 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 55 Beattie Place, P.O. Box 1089 Greenville, South Carolina 29602 (Address of principal executive offices) (864) 239-1000 Issuer's telephone number Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: Units of Limited Partnership Interest (Title of class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] State issuer's revenues for its most recent fiscal year. $10,262,000 State the aggregate market value of the voting partnership interests held by non-affiliates computed by reference to the price at which the partnership interests were sold, or the average bid and asked prices of such partnership interests, as of December 31, 2001. No market exists for the limited partnership interests of the Registrant, and, therefore, no aggregate market value can be determined. DOCUMENTS INCORPORATED BY REFERENCE None PART I Item 1. Description of Business Shelter Properties IV (the "Partnership" or "Registrant") was organized as a limited partnership under the laws of the State of South Carolina on August 21, 1981. The general partner responsible for management of the Partnership's business is Shelter Realty IV Corporation, a South Carolina corporation (the "Corporate General Partner"). The Corporate General Partner is a subsidiary of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The other general partner is AIMCO Properties, L.P., an affiliate of the Corporate General Partner and AIMCO. The Partnership Agreement provides that the Partnership is to terminate on December 31, 2022 unless terminated prior to such date. The Registrant is engaged in the business of operating and holding real estate properties for investment. In 1982 and 1983, during its acquisition phase, the Registrant acquired five existing apartment properties. The Registrant continues to own and operate two of these properties. See "Item 2. Description of Properties". Commencing June 8, 1982, the Registrant offered pursuant to a Registration Statement filed with the Securities and Exchange Commission up to 49,900 Units of Limited Partnership Interest (the "Units") at a purchase price of $1,000 per Unit with a minimum purchase of 5 Units ($5,000) or 2 Units ($2,000) for an Individual Retirement Account. An additional 100 Units were purchased by the Corporate General Partner. The offering terminated on December 15, 1982. Upon termination of the offering, the Registrant had accepted subscriptions for 50,000 Units, including 100 Units purchased by the Corporate General Partner, for an aggregate of $50,000,000. The Registrant invested approximately $38,000,000 of such proceeds in five existing apartment properties. Since its initial offering, the Registrant has not received, nor are limited partners required to make, additional capital contributions. The Registrant has no employees. Management and administrative services are performed by the Corporate General Partner and by agents retained by the Corporate General Partner. An affiliate of the Corporate General Partner has been providing such property management services. Both the income and expenses of operating the properties owned by the Partnership are subject to factors outside of the Partnership's control, such as changes in the supply and demand for similar properties resulting from various market conditions, increases/decreases in unemployment or population shifts, changes in the availability of permanent mortgage financing, changes in zoning laws, or changes in patterns or needs of users. In addition, there are risks inherent in owning and operating residential properties because such properties are susceptible to the impact of economic and other conditions outside of the control of the Partnership. There have been, and it is possible there may be other, Federal, state and local legislation and regulations enacted relating to the protection of the environment. The Partnership is unable to predict the extent, if any, to which such new legislation or regulations might occur and the degree to which such existing or new legislation or regulations might adversely affect the properties owned by the Partnership. The Partnership monitors its property for evidence of pollutants, toxins and other dangerous substances, including the presence of asbestos. In certain cases environmental testing has been performed, which resulted in no material adverse conditions or liabilities. In no case has the Partnership received notice that it is a potentially responsible party with respect to an environmental clean up site. The real estate business in which the Partnership is engaged is highly competitive. There are other residential properties within the market area of the Registrant's properties. The number and quality of competitive properties, including those which may be managed by an affiliate of the Corporate General Partner in such market area, could have a material effect on the rental market for the apartments at the Registrant's property and the rents that may be charged for such apartments. While the Corporate General Partner and its affiliates are a significant factor in the United States in the apartment industry, they own an insignificant percentage of total apartment units in the United States and competition for apartments is local. A further description of the Partnership's business is included in "Management's Discussion and Analysis or Plan of Operation" included in "Item 6" of this Form 10-KSB. Item 2. Description of Properties The following table sets forth the Registrant's investments in properties: Date of Property Purchase Type of Ownership Use Baymeadows Apartments 9/30/82 Fee ownership subject Apartment Jacksonville, Florida to first and second 904 units mortgages Quail Run Apartments 1/03/83 Fee ownership subject Apartment Columbia, South Carolina to first and second 332 units mortgages (1) (1) Property is held by a Limited Partnership which the Registrant owns a 99.99% interest in. On August 1, 2000, the Partnership sold Countrywood Village to an unrelated third party, for net proceeds of approximately $17,385,000 after payment of closing costs. The Partnership realized a gain of approximately $12,451,000 as a result of the sale. In addition, the Partnership recorded an extraordinary loss on early extinguishment of debt of approximately $246,000 as a result of unamortized loan costs and debt discount being written off and a prepayment penalty of approximately $116,000 relating to the prepayment of the mortgage encumbering the property. Schedule of Properties Set forth below for each of the Registrant's properties is the gross carrying value, accumulated depreciation, depreciable life, method of depreciation and Federal tax basis.
Gross Carrying Accumulated Depreciable Federal Property Value Depreciation Life-Years Method Tax Basis (in thousands) (in thousands) Baymeadows Apartments $40,164 $23,176 5-36 S/L $ 8,719 Quail Run Apartments 14,547 8,434 5-34 S/L 2,071 Total $54,711 $31,610 $10,790
See "Note A" to the financial statements included in "Item 7" for a description of the Partnership's depreciation policy. Schedule of Property Indebtedness The following table sets forth certain information relating to the loans encumbering the Registrant's properties.
Principal Principal Balance At Stated Balance December 31, Interest Period Maturity Due At Property 2001 Rate Amortized Date Maturity (1) (in thousands) (in thousands) Baymeadows 1st mortgage $12,063 7.60% 257 mo. 11/15/02 $11,555 2nd mortgage 493 7.60% 257 mo. 11/15/02 493 Quail Run 1st mortgage 4,865 7.60% 257 mo. 11/15/02 4,660 2nd mortgage 199 7.60% 257 mo. 11/15/02 199 17,620 Less unamortized discounts (170) Total $17,450 $16,907
(1) See "Item 7, Financial Statements - Note B" for information with respect to the Registrant's ability to prepay these loans and other specific details about the loans. Rental Rates and Occupancy Average annual rental rate and occupancy for the years ended December 31, 2001 and 2000: Average Annual Average Annual Rental Rates Occupancy (per unit) Property 2001 2000 2001 2000 Baymeadows (1) $8,110 $7,898 96% 93% Quail Run (2) 8,355 8,148 94% 91% (1) The Corporate General Partner attributes the increase in occupancy at Baymeadows Apartments to increased concessions and improved marketing strategies. (2) The Corporate General Partner attributes the increase in occupancy at Quail Run Apartments to the renting of corporate units. As noted under "Item 1. Description of Business", the real estate industry is highly competitive. Both properties are subject to competition from other residential apartment complexes in the area. The Corporate General Partner believes that the properties are adequately insured. Each property is an apartment complex which leases units for lease terms of one year or less. No tenant leases 10% or more of the available rental space. Both properties are in good condition subject to normal depreciation and deterioration as is typical for assets of this type and age. Real Estate Taxes and Rates Real estate taxes and rates in 2001 for each property were: 2001 2001 Billing Rate (in thousands) Baymeadows $ 467 1.97% Quail Run 158 30.9% (a) (a) The rates are based on the local authority's assessed value of the investment property. Capital Improvements Baymeadows Apartments: The Partnership completed approximately $1,246,000 in capital expenditures at Baymeadows Apartments as of December 31, 2001, consisting primarily of air conditioning upgrades, new cabinets, flooring replacements, interior decoration, major landscaping, plumbing upgrades, wall coverings, structural improvements, and appliances. These improvements were funded primarily from operating cash flow and replacement reserves. The Partnership is currently evaluating the capital improvement needs of the property for the upcoming year. The minimum amount to be budgeted is expected to be $300 per unit or $271,200. Additional improvements may be considered and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. Quail Run Apartments: The Partnership completed approximately $289,000 in capital expenditures at Quail Run Apartments as of December 31, 2001, consisting primarily of air conditioning upgrades, flooring replacements, water submetering enhancements, appliances, and other building improvements. These improvements were funded primarily from operating cash flow. The Partnership is currently evaluating the capital improvement needs of the property for the upcoming year. The minimum amount to be budgeted is expected to be $300 per unit or $99,600. Additional improvements may be considered and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. The additional capital expenditures will be incurred only if cash is available from operations and Partnership reserves. To the extent that such budgeted capital improvements are completed, the Registrant's distributable cash flow, if any, may be adversely affected at least in the short term. Item 3. Legal Proceedings In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, its Corporate General Partner and several of their affiliated partnerships and corporate entities. The action purports to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) which are named as nominal defendants, challenging, among other things, the acquisition of interests in certain Corporate General Partner entities by Insignia Financial Group, Inc. ("Insignia") and entities which were, at one time, affiliates of Insignia; past tender offers by the Insignia affiliates to acquire limited partnership units; management of the partnerships by the Insignia affiliates; and the series of transactions which closed on October 1, 1998 and February 26, 1999 whereby Insignia and Insignia Properties Trust, respectively, were merged into AIMCO. The plaintiffs seek monetary damages and equitable relief, including judicial dissolution of the Partnership. On June 25, 1998, the Corporate General Partner filed a motion seeking dismissal of the action. In lieu of responding to the motion, the plaintiffs filed an amended complaint. The Corporate General Partner filed demurrers to the amended complaint which were heard February 1999. Pending the ruling on such demurrers, settlement negotiations commenced. On November 2, 1999, the parties executed and filed a Stipulation of Settlement, settling claims, subject to court approval, on behalf of the Partnership and all limited partners who owned units as of November 3, 1999. Preliminary approval of the settlement was obtained on November 3, 1999 from the Court, at which time the Court set a final approval hearing for December 10, 1999. Prior to the December 10, 1999 hearing, the Court received various objections to the settlement, including a challenge to the Court's preliminary approval based upon the alleged lack of authority of prior lead counsel to enter the settlement. On December 14, 1999, the Corporate General Partner and its affiliates terminated the proposed settlement. In February 2000, counsel for some of the named plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated the settlement. On June 27, 2000, the Court entered an order disqualifying them from the case and an appeal was taken from the order on October 5, 2000. On December 4, 2000, the Court appointed the law firm of Lieff Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the putative class. Plaintiffs filed a third amended complaint on January 19, 2001. On March 2, 2001, the Corporate General Partner and its affiliates filed a demurrer to the third amended complaint. On May 14, 2001, the Court heard the demurrer to the third amended complaint. On July 10, 2001, the Court issued an order sustaining defendants' demurrer on certain grounds. On July 20, 2001, Plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order granting in part and denying in part defendants' demurrer. On September 7, 2001, Plaintiffs filed a fourth amended class and derivative action complaint. On September 12, 2001, the Court denied Plaintiffs' motion for reconsideration. On October 5, 2001, the Corporate General Partner and affiliated defendants filed a demurrer to the fourth amended complaint, which was heard on December 11, 2001. On February 2, 2002, the Court served its order granting in part the demurrer. The Court has dismissed without leave to amend certain of the plaintiffs' claims. On February 11, 2002, plaintiffs filed a motion seeking to certify a putative class comprised of all non-affiliated persons who own or have owned units in the partnerships. The Corporate General Partner and affiliated defendants intend to oppose the motion and are scheduled to file their opposition brief on March 26, 2002. A hearing on the motion has been scheduled for April 29, 2002. The Court has set the matter for trial in January 2003. During the third quarter of 2001, a complaint (the "Heller action") was filed against the same defendants that are named in the Nuanes action, captioned Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed a first amended complaint. The first amended complaint in the Heller action is brought as a purported derivative action, and asserts claims for among other things breach of fiduciary duty; unfair competition; conversion, unjust enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a motion to consolidate the Heller action with the Nuanes action and stated that the Heller action was filed in order to preserve the derivative claims that were dismissed without leave to amend in the Nuanes action by the Court order dated July 10, 2001. On October 5, 2001, the Corporate General Partner and affiliated defendants moved to strike the first amended complaint in its entirety for violating the Court's July 10, 2001 order granting in part and denying in part defendants' demurrer in the Nuanes action, or alternatively, to strike certain portions of the complaint based on the statute of limitations. Other defendants in the action demurred to the fourth amended complaint, and, alternatively, moved to strike the complaint. On December 11, 2001, the court heard argument on the motions and took the matters under submission. On February 4, 2002, the Court served notice of its order granting defendants' motion to strike the Heller complaint as a violation of its July 10, 2001 order in the Nuanes action. The Corporate General Partner does not anticipate that any costs, whether legal or settlement costs, associated with these cases will be material to the Partnership's overall operations. The Partnership is unaware of any other pending or outstanding litigation that is not of a routine nature arising in the ordinary course of business. Item 4. Submission of Matters to a Vote of Security Holders During the quarter ended December 31, 2001, no matter was submitted to a vote of unit holders through the solicitation of proxies or otherwise. PART II Item 5. Market for Partnership Equity and Related Partner Matters The Partnership, a publicly-held limited partnership, offered and sold 49,900 limited partnership units aggregating $49,900,000. An additional 100 units were purchased by the Corporate General Partner. The Partnership currently has 1,976 holders of record owning an aggregate of 49,995 Units. Affiliates of the Corporate General Partner owned 32,975 units or 65.96% at December 31, 2001. No public trading market has developed for the Units, and it is not anticipated that such a market will develop in the future. The following table sets forth the distributions made by the Partnership for the twelve months ended December 31, 2000 and 2001. See "Item 6. Management's Discussion and Analysis or Plan of Operation" for further details. Distributions Per Limited Aggregate Partnership Unit 01/01/00 - 12/31/00 $13,743,000 (1) $274.49 01/01/01 - 12/31/01 929,000 (2) 18.58 (1) Consists of approximately $11,743,000 of proceeds from the sale of Countrywood Village and approximately $2,000,000 of cash from operations. (2) Distributions were made from remaining proceeds from the sale of Countrywood Village. Future cash distributions will depend on the levels of net cash generated from operations, the availability of cash reserves and the timing of debt maturities, refinancings and/or property sales. The Partnership is currently planning on refinancing the debt encumbering its investment properties prior to their November 2002 maturity. The Partnership's cash available for distribution is reviewed on a monthly basis. There can be no assurance that the Partnership will generate sufficient funds from operations, after required capital expenditures, to permit any additional distributions to its partners in 2002 or subsequent periods. See "Item 2. Description of Properties - Capital Improvements" for information relating to anticipated capital expenditures at the properties. In addition, the Partnership may be restricted from making distributions if the amount in the reserve account for each property maintained by the mortgage lender is less than $400 per apartment unit at such property. As of December 31, 2001, the reserve account was fully funded with approximately $1,247,000 on deposit with the mortgage lender. In addition to its indirect ownership of the general partner interests in the Partnership, AIMCO and its affiliates owned 32,975 limited partnership units (the "Units") in the Partnership representing 65.96% of the outstanding Units at December 31, 2001. A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO either through private purchases or tender offers. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters which would include voting on certain amendments to the Partnership Agreement and voting to remove the Corporate General Partner. As a result of its ownership of 65.96% of the outstanding Units, AIMCO is in a position to control all such voting decisions with respect to the Registrant. When voting on matters, AIMCO would in all likelihood vote the Units it acquired in a manner favorable to the interest of the Corporate General Partner because of its affiliation with the Corporate General Partner. Item 6. Management's Discussion and Analysis or Plan of Operation The matters discussed in this Form 10-KSB contain certain forward-looking statements and involve risks and uncertainties (including changing market conditions, competitive and regulatory matters, etc.) detailed in the disclosure contained in this Form 10-KSB and the other filings with the Securities and Exchange Commission made by the Registrant from time to time. The discussion of the Registrant's business and results of operations, including forward-looking statements pertaining to such matters, does not take into account the effects of any changes to the Registrant's business and results of operations. Accordingly, actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including those identified herein. This item should be read in conjunction with the consolidated financial statements and other items contained elsewhere in this report. Results of Operations The Partnership recorded net income of approximately $1,052,000 for the year ended December 31, 2001 compared to net income of approximately $13,215,000 for the corresponding period in 2000. The decrease in net income is primarily due to the sale of Countrywood Village. On August 1, 2000, the Partnership sold Countrywood Village to an unrelated third party, for net proceeds of approximately $17,385,000 after payment of closing costs. During the year ended December 31, 2000, the Partnership realized a gain of approximately $12,451,000 as a result of the sale. In addition, the Partnership recorded an extraordinary loss on early extinguishment of debt of approximately $246,000 as a result of unamortized loan costs and debt discount being written off and a prepayment penalty of approximately $116,000 relating to the prepayment of the mortgage encumbering the property. Excluding the impact of the sale and operations of Countrywood Village, net income for the years ended December 31, 2001 and 2000 was approximately $1,052,000 and $526,000, respectively. The increase in net income is primarily due to an increase in total revenues and recognition of a casualty gain, partially offset by an increase in total expenses. Total revenues increased due to an increase in rental income and other income. Rental income increased due to increases in average rental rates and occupancy at both properties. Other income increased due to increases in utility reimbursements at both properties and corporate unit rent at Quail Run. During the year ended December 31, 2001, a net casualty gain of approximately $20,000 was recorded at Quail Run Apartments. The casualty gain related to a fire which occurred on September 30, 1999. The gain was a result of the receipt of insurance proceeds of approximately $28,000 and the write-off of the net book value of the destroyed assets of approximately $8,000. During the year ended December 31, 2001, a net casualty gain of approximately $56,000 was recorded at Baymeadows Apartments. The casualty gain related to a tropical storm that occurred on September 14, 2001. The gain was a result of the receipt of insurance proceeds of approximately $82,000 and the write-off of the net book value of the destroyed assets of approximately $26,000. Total expenses for the year ended December 31, 2001 increased due to increases in operating and depreciation expenses offset by a decrease in general and administrative expenses. Operating expenses increased due to increased insurance expenses at both properties, offset by a decrease in utility expenses and salaries and related benefits at Baymeadows. Depreciation expense increased due to capital improvements and replacements placed into service during the past twelve months at both investment properties. General and administrative expenses decreased due to decreases in professional expenses and reimbursements to the Corporate General Partner as allowed under the Partnership Agreement. In addition to these costs, costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit and appraisals required by the Partnership Agreement are also included in general and administrative expenses. As part of the ongoing business plan of the Registrant, the Corporate General Partner monitors the rental market environment of each of its investment properties to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Registrant from increases in expense. As part of this plan, the Corporate General Partner attempts to protect the Registrant from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, due to changing market conditions, which can result in the use of rental concessions and rental reductions to offset softening market conditions, there is no guarantee that the Corporate General Partner will be able to sustain such a plan. Liquidity and Capital Resources At December 31, 2001, the Partnership had cash and cash equivalents of approximately $517,000 compared to approximately $2,042,000 at December 31, 2000. Cash and cash equivalents decreased approximately $1,525,000 since December 31, 2000 due to approximately $2,885,000 and $1,753,000 of cash used in investing and financing activities, respectively, offset by approximately $3,113,000 of cash provided by operating activities. Cash used in investing activities consisted of property improvements and replacements and net deposits to restricted escrows maintained by the mortgage lender slightly offset by insurance proceeds received. Cash used in financing activities consisted of distributions to partners and principal payments made on the mortgages encumbering the Registrant's properties. The Registrant invests its working capital reserves in interest bearing accounts. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the investment properties to adequately maintain the physical assets and other operating needs of the Partnership and to comply with Federal, state, and local legal, and regulatory requirements. The Partnership is currently evaluating the capital improvement needs of the properties for the upcoming year. The minimum to be budgeted is expected to be $300 per unit or $370,800. Additional improvements may be considered and will depend on the physical condition of the properties as well as replacement reserves and anticipated cash flow generated by the properties. The additional capital expenditures will be incurred only if cash is available from operations and Partnership reserves. To the extent that such budgeted capital improvements are completed, the Registrant's distributable cash flow, if any, may be adversely affected at least in the short term. The Registrant's current assets are thought to be sufficient for any near-term needs (exclusive of capital improvements and the upcoming debt maturities) of the Registrant. The mortgage indebtedness of approximately $17,450,000, net of discount, is being amortized over 257 months with balloon payments of approximately $16,907,000 due on November 15, 2002. The Corporate General Partner will attempt to refinance such indebtedness and/or sell the properties prior to such maturity date. If the properties cannot be refinanced or sold for a sufficient amount, the Registrant will risk losing such properties through foreclosure. During the year ended December 31, 2001, the Partnership declared and paid distributions from previously undistributed sales proceeds from the sale of Countrywood Village in August 2000 of approximately $929,000 to the limited partners ($18.58 per limited partnership unit). At December 31, 2001, approximately $424,000 of proceeds from this sale remain to be distributed. During the year ended December 31, 2000, the Partnership declared and paid a distribution from operations of approximately $2,000,000 (approximately $1,980,000 paid to limited partners or $39.60 per limited partnership unit) and a distribution of approximately $11,743,000 of sales proceeds from the sale of Countrywood Village to the limited partners ($234.89 per limited partnership unit). During the two months ended December 1999, the Partnership declared a distribution of approximately $1,000,000 (approximately $990,000 paid to the limited partners or $19.80 per limited partnership unit) from operations. This distribution was paid in January 2000. Future cash distributions will depend on the levels of net cash generated from operations, the availability of cash reserves and the timing of debt maturities, refinancings and/or property sales. The Partnership's cash available for distribution is reviewed on a monthly basis. There can be no assurance that the Partnership will generate sufficient funds from operations, after required capital expenditures, to permit any additional distributions to its partners in the year 2002 or subsequent periods. In addition, the Partnership may be restricted from making distributions if the amount in the reserve account for each property is less than $400 per apartment unit at such property. As of December 31, 2001, the reserve account was fully funded with approximately $1,247,000 on deposit with the mortgage lender. In addition to its indirect ownership of the general partner interests in the Partnership, AIMCO and its affiliates owned 32,975 limited partnership units (the "Units") in the Partnership representing 65.96% of the outstanding Units at December 31, 2001. A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO either through private purchases or tender offers. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters which would include voting on certain amendments to the Partnership Agreement and voting to remove the Corporate General Partner. As a result of its ownership of 65.96% of the outstanding Units, AIMCO is in a position to control all such voting decisions with respect to the Registrant. When voting on matters, AIMCO would in all likelihood vote the Units it acquired in a manner favorable to the interest of the Corporate General Partner because of its affiliation with the Corporate General Partner. Recent Accounting Pronouncements In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 provides accounting guidance for financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The Corporate General Partner does not anticipate that its adoption will have a material effect on the financial position or results of operations of the Partnership. Item 7. Financial Statements SHELTER PROPERTIES IV LIST OF FINANCIAL STATEMENTS Report of Ernst & Young LLP, Independent Auditors Consolidated Balance Sheet - December 31, 2001 Consolidated Statements of Operations - Years ended December 31, 2001 and 2000. Consolidated Statements of Changes in Partners' (Deficit) Capital - Years ended December 31, 2001 and 2000. Consolidated Statements of Cash Flows - Years ended December 31, 2001 and 2000. Notes to Consolidated Financial Statements Report of Ernst & Young LLP, Independent Auditors The Partners Shelter Properties IV We have audited the accompanying consolidated balance sheet of Shelter Properties IV as of December 31, 2001, and the related consolidated statements of operations, changes in partners' (deficit) capital, and cash flows for each of the two years in the period ended December 31, 2001. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Shelter Properties IV at December 31, 2001, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. /s/ERNST & YOUNG LLP Greenville, South Carolina February 15, 2002 SHELTER PROPERTIES IV CONSOLIDATED BALANCE SHEET (in thousands, except per unit data) December 31, 2001
Assets Cash and cash equivalents $ 517 Receivables and deposits 179 Restricted escrows 1,247 Other assets 170 Investment properties (Notes B and F): Land $ 2,759 Buildings and related personal property 51,952 54,711 Less accumulated depreciation (31,610) 23,101 $ 25,214 Liabilities and Partners' Capital Liabilities Accounts payable $ 278 Tenant security deposit liabilities 225 Accrued property taxes 194 Other liabilities 369 Mortgage notes payable (Note B) 17,450 Partners' Capital General partners $ 109 Limited partners (49,995 units issued and outstanding) 6,589 6,698 $ 25,214 See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES IV CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except unit data)
Years Ended December 31, 2001 2000 Revenues: Rental income $ 9,318 $ 10,321 Other income 868 681 Gain on sale of investment property (Note H) -- 12,451 Casualty gain (Note E) 76 -- Total revenues 10,262 23,453 Expenses: Operating 4,431 4,778 General and administrative 397 512 Depreciation 2,071 2,101 Interest 1,663 1,889 Property taxes 648 712 Total expenses 9,210 9,992 Income before extraordinary item 1,052 13,461 Extraordinary loss on early extinguishment of debt (Note H) -- (246) Net income (Note C) $ 1,052 $ 13,215 Net income allocated to general partners (1%) $ 11 $ 132 Net income allocated to limited partners (99%) 1,041 13,083 $ 1,052 $ 13,215 Per limited partnership unit: Income before extraordinary item $ 20.82 $ 266.55 Extraordinary loss on early extinguishment of debt -- (4.86) Net income $ 20.82 $ 261.69 Distributions per limited partnership unit $ 18.58 $ 274.49 See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES IV CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL (in thousands, except unit data)
Limited Partnership General Limited Units Partners Partners Total Original capital contributions 50,000 $ 2 $ 50,000 $ 50,002 Partners' (deficit) capital at December 31, 1999 49,995 $ (14) $ 7,117 $ 7,103 Net income for the year ended December 31, 2000 -- 132 13,083 13,215 Distribution to partners -- (20) (13,723) (13,743) Partners' capital at December 31, 2000 49,995 98 6,477 6,575 Net income for the year ended December 31, 2001 -- 11 1,041 1,052 Distribution to partners -- -- (929) (929) Partners' capital at December 31, 2001 49,995 $ 109 $ 6,589 $ 6,698 See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES IV CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Years Ended December 31, 2001 2000 Cash flows from operating activities: Net income $ 1,052 $ 13,215 Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of investment property -- (12,451) Loss on early extinguishment of debt -- 246 Depreciation 2,071 2,101 Casualty (gain) loss (76) 25 Amortization of discounts and loan costs 324 242 Change in accounts: Receivables and deposits (65) 601 Other assets (8) 164 Accounts payable 127 48 Tenant security deposit liabilities 22 (29) Accrued property taxes 1 (148) Other liabilities (335) 239 Net cash provided by operating activities 3,113 4,253 Cash flows from investing activities: Property improvements and replacements (2,462) (3,567) Net (deposits to) withdrawals from restricted escrows (533) 187 Net proceeds from the sale of investment property -- 17,385 Insurance proceeds received 110 -- Net cash (used in) provided by investing activities (2,885) 14,005 Cash flows from financing activities: Payments on mortgage notes payable (824) (815) Repayment of mortgage notes payable -- (4,172) Debt extinguishment costs -- (116) Partners' distributions (929) (14,743) Net cash used in financing activities (1,753) (19,846) Net decrease in cash and cash equivalents (1,525) (1,588) Cash and cash equivalents at beginning of period 2,042 3,630 Cash and cash equivalents at end of period $ 517 $ 2,042 Supplemental disclosure of cash flow information: Cash paid for interest $ 1,348 $ 1,667 Supplemental disclosure of non-cash information: Property improvements and replacements included in accounts payable $ -- $ 927 See Accompanying Notes to Consolidated Financial Statements
SHELTER PROPERTIES IV NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note A - Organization and Significant Accounting Policies Organization: Shelter Properties IV (the "Partnership" or "Registrant") was organized as a limited partnership under the laws of the State of South Carolina on August 21, 1981. The general partner responsible for management of the Partnership's business is Shelter Realty IV Corporation, a South Carolina corporation (the "Corporate General Partner"). The Corporate General Partner is a subsidiary of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The other general partner is AIMCO Properties, L.P., an affiliate of the Corporate General Partner and AIMCO. The Partnership Agreement provides that the Partnership is to terminate on December 31, 2022 unless terminated prior to such date. The Partnership commenced operations on July 22, 1982, and completed its acquisition of apartment properties on March 31, 1983. The Partnership operates two apartment properties located in the Southeast. Principles of Consolidation: The financial statements include all the accounts of the Partnership and its 99.99% owned partnership. The General Partner of the consolidated partnership is the Corporate General Partner. The Corporate General Partner may be removed by the Registrant; therefore, the consolidated partnership is controlled and consolidated by the Registrant. All significant interpartnership balances have been eliminated. Uses of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Allocation of Cash Distributions: Cash distributions by the Partnership are allocated between general and limited partners in accordance with the provisions of the Partnership Agreement. The Partnership Agreement provides that net cash from operations means revenue received less operating expenses paid, adjusted for certain specified items which primarily include mortgage payments on debt, property improvements and replacements not previously reserved, and the effects of other adjustments to reserves including reserve amounts deemed necessary by the Corporate General Partner. In the following notes to financial statements, whenever net cash from operations is used, it has the aforementioned meaning. As required by the Partnership Agreement, the following is a reconciliation of "net cash provided by operating activities" in the accompanying consolidated statements of cash flows to "net cash from operations", as defined in the Partnership Agreement. However, "net cash from operations" should not be considered an alternative to net income as an indicator of the Partnership's operating performance or to cash flows as a measure of liquidity. Years Ended December 31, 2001 2000 (in thousands) Net cash provided by operating activities $ 3,113 $ 4,253 Property improvements and replacements (2,462) (3,567) Payments on mortgage notes payable (824) (815) Changes in restricted escrows, net (533) 187 Changes in reserves for net operating liabilities 258 (875) Release of operating reserves 448 817 Net cash from operations $ -- $ -- During the year ended December 31, 2001 and 2000, the Corporate General Partner released previously reserved funds of approximately $448,000 and $817,000, respectively. Distributions made from reserves no longer considered necessary by the Corporate General Partner are considered to be additional net cash from operations for allocation purposes. During the year ended December 31, 2001, the Partnership declared and paid distributions from previously undistributed sales proceeds from the sale of Countrywood Village in August 2000 of approximately $929,000 to the limited partners ($18.58 per limited partnership unit). At December 31, 2001, approximately $424,000 of proceeds from this sale remain to be distributed. During the year ended December 31, 2000, the Partnership declared and paid a distribution from operations of approximately $2,000,000 (approximately $1,980,000 paid to limited partners or $39.60 per limited partnership unit) and a distribution of approximately $11,743,000 of sales proceeds from the sale of Countrywood Village to the limited partners ($234.89 per limited partnership unit). During the two months ended December 1999, the Partnership declared a distribution of approximately $1,000,000 (approximately $990,000 paid to the limited partners or $19.80 per limited partnership unit) from operations. This distribution was paid in January 2000. The Partnership Agreement provides that 99% of distributions of net cash from operations are allocated to the limited partners until they receive net cash from operations for such fiscal year equal to 7% of their adjusted capital values (as defined in the Partnership Agreement), at which point the general partners will be allocated all net cash from operations until they have received distributions equal to 10% of the aggregate net cash from operations distributed to partners for such fiscal year. Thereafter, the general partners will be allocated 10% of any distributions of remaining net cash from operations for such fiscal year. All distributions of distributable net proceeds (as defined in the Partnership Agreement) from property dispositions and refinancings will be allocated to the limited partners until each limited partner has received an amount equal to a cumulative 7% per annum of the average of the limited partners' adjusted capital value, less any prior distributions of net cash from operations and distributable net proceeds, and has also received an amount equal to the limited partners' adjusted capital value. Thereafter, the general partners receive 1% of the selling price of properties sold where they acted as a broker, and then the limited partners will be allocated 85% of any remaining distributions of distributable net proceeds and the general partners will receive 15%. Distributions may be restricted by the requirement to deposit net operating income (as defined in the mortgage note) into the Reserve Account until the Reserve Account is funded in an amount greater than $400 per apartment unit for each respective property for a total of $494,000. As of December 31, 2001, the Partnership has deposits of approximately $1,247,000 in its Reserve Account. Allocation of Profits, Gains, and Losses: Profits, gains and losses of the Partnership are allocated between general and limited partners in accordance with the provisions of the Partnership Agreement. Profits, not including gains from property dispositions, are allocated as if they were distributions of net cash from operations. Any gain from property dispositions attributable to the excess, if any, of the indebtedness relating to a property immediately prior to the disposition of such property over the Partnership's adjusted basis in the property shall be allocated to each partner having a negative capital account balance, to the extent of such negative balance. The balance of any gain shall be treated on a cumulative basis as if it constituted an equivalent amount of distributable net proceeds and shall be allocated to the general partners to the extent that general partners would have received distributable net proceeds in connection therewith; the balance shall be allocated to the limited partners. However, the interest of the general partners will be equal to at least 1% of each gain at all times during the existence of the Partnership. All losses, including losses attributable to property dispositions, are allocated 99% to the limited partners and 1% to the general partners. Accordingly, net income as shown in the consolidated statements of operations and consolidated changes in partners' (deficit) capital for both of the twelve months ended December 31, 2001 and 2000 were allocated 99% to the limited partners and 1% to the general partners. Net income per limited partnership unit for each such year was computed as 99% of net income divided by 49,995 units outstanding. Other Reserves: The Corporate General Partner may designate a portion of cash generated from operations as "other reserves" in determining net cash from operations. The Corporate General Partner designated as other reserves an amount equal to the net liabilities related to the operations of apartment properties during the current fiscal year that are expected to require the use of cash during the next fiscal year. The changes in other reserves during the years ended December 31, 2001 and 2000 were an increase of approximately $258,000 and a decrease of $875,000, respectively. These amounts were determined by considering changes in the balances of receivables and deposits, other assets, accounts payable, tenant security deposit liabilities, accrued taxes and other liabilities. At this time, the Corporate General Partner expects to continue to adjust other reserves based on the net change in the aforementioned account balances. Fair Value of Financial Instruments: Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures about Fair Value of Financial Instruments", as amended by SFAS No. 119, "Disclosures about Derivative Financial Instruments and Fair Value of Financial Instruments", requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate fair value. Fair value is defined in the SFAS as the amount at which the instruments could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Partnership believes that the carrying amounts of its financial instruments (except for long term debt) approximate their fair values due to the short term maturity of these instruments. The fair value of the Partnership's long term debt, after discounting the scheduled loan payments to maturity, approximates its carrying balance. Cash and Cash Equivalents: Includes cash on hand and in banks. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Cash balances include approximately $474,000 at December 31, 2001 that are maintained by an affiliated management company on behalf of affiliated entities in cash concentration accounts. Restricted Reserve Account: A general Reserve Account was established in 1992 with the refinancing proceeds for both properties. These funds were established to cover necessary repairs and replacements of existing improvements, debt service, out of pocket expenses incurred for ordinary and necessary administrative tasks and payment of real property taxes and insurance premiums. The Partnership is required to deposit net operating income (as defined in the mortgage note) from each refinanced property to the respective reserve account until they equal a minimum of $400 per apartment unit or $494,000 in total. The balance at December 31, 2001, is approximately $1,247,000, which includes interest. Depreciation: Depreciation is provided by the straight-line method over the estimated lives of the apartment properties and related personal property. For Federal income tax purposes, the accelerated cost recovery method is used for real property over 18 years for additions after March 15, 1984 and before May 9, 1985, and 19 years for additions after May 8, 1985, and before January 1, 1987. As a result of the Tax Reform Act of 1986, for additions after December 31, 1986, the modified accelerated cost recovery method is used for depreciation of (1) real property over 27 1/2 years and (2) personal property additions over 5 years. Loan Costs: Loan costs of approximately $700,000, less accumulated amortization of approximately $636,000, are included in other assets and are being amortized on a straight-line basis over the life of the related loans. Tenant Security Deposits: The Partnership requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. Deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. Leases: The Partnership generally leases apartment units for twelve-month terms or less. The Partnership recognizes income as earned on its leases. In addition, the Corporate General Partner's policy is to offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Concessions are charged against rental income as incurred. Investment Properties: Investment properties consist of two apartment complexes and are stated at cost. Acquisition fees are capitalized as a cost of real estate. In accordance with Statement of Financial Accounting Standards Board No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. Costs of apartment properties that have been permanently impaired have been written down to appraised value. The Corporate General Partner relies on the annual appraisals performed by the outside appraisers for the estimated value of the Partnership's properties. There are three recognized approaches or techniques available to the appraiser. When applicable, these approaches are used to process the data considered significant to each to arrive at separate value indications. In all instances the experience of the appraiser, coupled with his objective judgment, plays a major role in arriving at the conclusions of the indicated value for which the final estimate of value is made. The three approaches commonly known are the cost approach, the sales comparison approach, and the income approach. The cost approach is often not considered to be reliable due to the lack of land sales and the significant amount of depreciation and, therefore, is often not presented. Upon receipt of the appraisals, any property which is stated on the books of the Partnership above the estimated value given in the appraisal, is written down to the estimated value given by the appraiser. The appraiser assumes a stabilized occupancy at the time of the appraisal and, therefore, any impairment of value is considered to be permanent by the Corporate General Partner. No adjustments for impairment of value were recorded in the years ended December 31, 2001 and 2000, respectively. See "Recent Accounting Pronouncements" below. Advertising: The Partnership expenses the costs of advertising as incurred. Advertising costs of approximately $112,000 and $101,000 for the years ended December 31, 2001 and 2000, respectively. Segment Reporting: Statement of Financial Accounting Standards ("SFAS") No. 131, "Disclosure about Segments of an Enterprise and Related Information" established standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. It also established standards for related disclosures about products and services, geographic areas, and major customers. As defined in SFAS No. 131, the Partnership has only one reportable segment. The Corporate General Partner believes that segment-based disclosures will not result in a more meaningful presentation than the consolidated financial statements as currently presented. Recent Accounting Pronouncements: In August 2001, the Financial Accounting Standards Board issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS No. 144 provides accounting guidance for financial accounting and reporting for the impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The Corporate General Partner does not anticipate that its adoption will have a material effect on the financial position or results of operations of the Partnership. Note B - Mortgage Notes Payable The principal terms of mortgage notes payable are as follows:
Principal Monthly Principal Balance At Payment Stated Balance December 31, Including Interest Maturity Due At Property 2001 Interest Rate Date Maturity (in thousands) (in thousands) Baymeadows 1st mortgage $12,063 $ 126 7.60% 11/15/02 $11,555 2nd mortgage 493 3 7.60% 11/15/02 493 Quail Run 1st mortgage 4,865 51 7.60% 11/15/02 4,660 2nd mortgage 199 1 7.60% 11/15/02 199 17,620 Less unamortized discounts (170) Total $17,450 $ 181 $16,907
The Partnership exercised interest rate buy-down options for the two properties when the debt was refinanced in 1992, thereby, reducing the stated rate from 8.76% to 7.6%. The fee for the interest rate reduction amounted to approximately $1,606,000 and is being amortized as a loan discount using the effective interest method over the life of the loans. The unamortized discount fee is reflected as a reduction of the mortgage notes payable and increases the effective rate of the debt to 8.76%. The mortgage notes payable are non-recourse and are secured by a pledge of the respective apartment properties and revenues generated by the properties. Prepayment penalties are required if repaid prior to maturity. Further, the properties may not be sold subject to existing indebtedness. Scheduled principal payments of mortgage notes payable subsequent to December 31, 2001 are as follows (in thousands): 2002 $17,450 The Partnership is currently planning on refinancing the debt encumbering Baymeadows and Quail Run Apartments prior to their November 2002 maturities. Note C - Income Taxes The Partnership has received a ruling from the Internal Revenue Service that it will be classified as a partnership for Federal income tax purposes. Accordingly, no provision for income taxes is made in the consolidated financial statements of the Partnership. Taxable income or loss of the Partnership is reported in the income tax returns of its partners. The following is a reconciliation of reported net income and Federal taxable income (in thousands, except per unit data): Years Ended December 31, 2001 2000 Net income as reported $ 1,052 $13,215 Add (deduct): Depreciation differences 995 1,208 Change in prepaid rental (6) (19) Cumulative effect on prior year of a change in accounting principle -- 28 Other (33) 3,050 Federal taxable income $ 2,008 $17,482 Federal taxable income per limited partnership unit $ 39.76 $341.75 The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net assets (in thousands): Net assets as reported $ 6,698 Land and buildings 7,234 Accumulated depreciation (19,545) Syndication 6,293 Other 124 Net assets - Federal tax basis $ 804 Note D - Transactions with Affiliated Parties The Partnership has no employees and is dependent on the Corporate General Partner and its affiliates for the management and administration of all Partnership activities. The Partnership Agreement provides for (i) certain payments to affiliates for services and (ii) reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following payments were paid or accrued to the Corporate General Partner and affiliates during the years ended December 31, 2001 and 2000: Years Ended December 31, 2001 2000 (in thousands) Property management fees (included in operating expense) $ 525 $ 552 Reimbursement for services of affiliates (included in general and administrative expenses and investment properties) 641 677 Commission to General Partner (included in gain on sale of investment property and other liabilities) -- 178 Affiliates of the Corporate General Partner are entitled to receive 5% of gross receipts from all of the Registrant's properties as compensation for providing property management services. The Registrant paid to such affiliates approximately $525,000 and $552,000 during the years ended December 31, 2001 and 2000, respectively. Affiliates of the Corporate General Partner received reimbursement of accountable administrative expenses amounting to approximately $641,000 and $677,000 for the years ended December 31, 2001 and 2000, respectively. Included in these amounts are fees related to construction management services provided by an affiliate of the Corporate General Partner of approximately $351,000 and $331,000 for the years ended December 31, 2001 and 2000, respectively. The construction management service fees are calculated based on a percentage of current and certain prior year additions to the investment property and are being depreciated over 15 years. Pursuant to the Partnership Agreement and in connection with the sale of Countrywood Village, the Corporate General Partner is entitled to a commission of up to 1% for its assistance in the sale. Payment of such commission is subordinate to the limited partners receiving a cumulative 7% return on their investment. This return has not yet been met, and accordingly, the $178,000 was accrued and is included in other liabilities in the accompanying consolidated balance sheet at December 31, 2001. Beginning in 2001, the Partnership began insuring its properties up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers compensation, property casualty and vehicle liability. The Partnership insures its properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the Corporate General Partner. During the year ended December 31, 2001, the Partnership paid AIMCO and its affiliates approximately $155,000 for insurance coverage and fees associated with policy claims administration. In addition to its indirect ownership of the general partner interests in the Partnership, AIMCO and its affiliates owned 32,975 limited partnership units (the "Units") in the Partnership representing 65.96% of the outstanding Units at December 31, 2001. A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO either through private purchases or tender offers. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters which would include voting on certain amendments to the Partnership Agreement and voting to remove the Corporate General Partner. As a result of its ownership of 65.96% of the outstanding Units, AIMCO is in a position to control all such voting decisions with respect to the Registrant. When voting on matters, AIMCO would in all likelihood vote the Units it acquired in a manner favorable to the interest of the Corporate General Partner because of its affiliation with the Corporate General Partner. Note E - Casualty Event During the year ended December 31, 2001, a net casualty gain of approximately $20,000 was recorded at Quail Run Apartments. The casualty gain related to a fire which occurred on September 30, 1999. The gain was a result of the receipt of insurance proceeds of approximately $28,000 and the write-off of the net book value of the destroyed assets of approximately $8,000. During the year ended December 31, 2001, a net casualty gain of approximately $56,000 was recorded at Baymeadows Apartments. The casualty gain related to a tropical storm that occurred on September 14, 2001. The gain was a result of the receipt of insurance proceeds of approximately $82,000 and the write-off of the net book value of the destroyed assets of approximately $26,000. Note F - Real Estate and Accumulated Depreciation
Initial Cost To Partnership (in thousands) Buildings Cost and Related Capitalized Personal Subsequent to Description Encumbrances Land Property Acquisition (in thousands) (in thousands) Baymeadows Apartments $12,556 $ 1,884 $26,916 $11,364 Quail Run Apartments 5,064 875 10,642 3,030 Totals $17,620 $ 2,759 $37,558 $14,394
Gross Amount At Which Carried At December 31, 2001 (in thousands) Buildings And Related Personal Accumulated Date Depreciable Description Land Property Total Depreciation Acquired Life-Years (in thousands) Baymeadows Apartments $ 1,884 $38,280 $40,164 $23,176 09/30/82 5-36 Quail Run Apartments 875 13,672 14,547 8,434 01/03/83 5-34 Totals $ 2,759 $51,952 $54,711 $31,610
Reconciliation of "Real Estate and Accumulated Depreciation": Years Ended December 31, 2001 2000 (in thousands) Real Estate Balance at beginning of period $ 53,235 $ 62,863 Property improvements 1,535 4,494 Disposition of assets (59) (14,122) Balance at end of period $ 54,711 $ 53,235 Accumulated Depreciation Balance at beginning of period $ 29,575 $ 36,714 Additions charged to expense 2,071 2,101 Disposition of assets (36) (9,240) Balance at end of period $ 31,610 $ 29,575 The aggregate cost of the real estate for Federal income tax purposes at December 31, 2001 and 2000 is approximately $61,945,000 and $60,771,000, respectively. The accumulated depreciation taken for Federal income tax purposes at December 31, 2001 and 2000 is approximately $51,155,000 and $50,319,000, respectively. Note G - Legal Proceedings In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, its Corporate General Partner and several of their affiliated partnerships and corporate entities. The action purports to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) which are named as nominal defendants, challenging, among other things, the acquisition of interests in certain Corporate General Partner entities by Insignia Financial Group, Inc. ("Insignia") and entities which were, at one time, affiliates of Insignia; past tender offers by the Insignia affiliates to acquire limited partnership units; management of the partnerships by the Insignia affiliates; and the series of transactions which closed on October 1, 1998 and February 26, 1999 whereby Insignia and Insignia Properties Trust, respectively, were merged into AIMCO. The plaintiffs seek monetary damages and equitable relief, including judicial dissolution of the Partnership. On June 25, 1998, the Corporate General Partner filed a motion seeking dismissal of the action. In lieu of responding to the motion, the plaintiffs filed an amended complaint. The Corporate General Partner filed demurrers to the amended complaint which were heard February 1999. Pending the ruling on such demurrers, settlement negotiations commenced. On November 2, 1999, the parties executed and filed a Stipulation of Settlement, settling claims, subject to court approval, on behalf of the Partnership and all limited partners who owned units as of November 3, 1999. Preliminary approval of the settlement was obtained on November 3, 1999 from the Court, at which time the Court set a final approval hearing for December 10, 1999. Prior to the December 10, 1999 hearing, the Court received various objections to the settlement, including a challenge to the Court's preliminary approval based upon the alleged lack of authority of prior lead counsel to enter the settlement. On December 14, 1999, the Corporate General Partner and its affiliates terminated the proposed settlement. In February 2000, counsel for some of the named plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated the settlement. On June 27, 2000, the Court entered an order disqualifying them from the case and an appeal was taken from the order on October 5, 2000. On December 4, 2000, the Court appointed the law firm of Lieff Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the putative class. Plaintiffs filed a third amended complaint on January 19, 2001. On March 2, 2001, the Corporate General Partner and its affiliates filed a demurrer to the third amended complaint. On May 14, 2001, the Court heard the demurrer to the third amended complaint. On July 10, 2001, the Court issued an order sustaining defendants' demurrer on certain grounds. On July 20, 2001, Plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order granting in part and denying in part defendants' demurrer. On September 7, 2001, Plaintiffs filed a fourth amended class and derivative action complaint. On September 12, 2001, the Court denied Plaintiffs' motion for reconsideration. On October 5, 2001, the Corporate General Partner and affiliated defendants filed a demurrer to the fourth amended complaint, which was heard on December 11, 2001. On February 2, 2002, the Court served its order granting in part the demurrer. The Court has dismissed without leave to amend certain of the plaintiffs' claims. On February 11, 2002, plaintiffs filed a motion seeking to certify a putative class comprised of all non-affiliated persons who own or have owned units in the partnerships. The Corporate General Partner and affiliated defendants intend to oppose the motion and are scheduled to file their opposition brief on March 26, 2002. A hearing on the motion has been scheduled for April 29, 2002. The Court has set the matter for trial in January 2003. During the third quarter of 2001, a complaint (the "Heller action") was filed against the same defendants that are named in the Nuanes action, captioned Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed a first amended complaint. The first amended complaint in the Heller action is brought as a purported derivative action, and asserts claims for among other things breach of fiduciary duty; unfair competition; conversion, unjust enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a motion to consolidate the Heller action with the Nuanes action and stated that the Heller action was filed in order to preserve the derivative claims that were dismissed without leave to amend in the Nuanes action by the Court order dated July 10, 2001. On October 5, 2001, the Corporate General Partner and affiliated defendants moved to strike the first amended complaint in its entirety for violating the Court's July 10, 2001 order granting in part and denying in part defendants' demurrer in the Nuanes action, or alternatively, to strike certain portions of the complaint based on the statute of limitations. Other defendants in the action demurred to the fourth amended complaint, and, alternatively, moved to strike the complaint. On December 11, 2001, the court heard argument on the motions and took the matters under submission. On February 4, 2002, the Court served notice of its order granting defendants' motion to strike the Heller complaint as a violation of its July 10, 2001 order in the Nuanes action. The Corporate General Partner does not anticipate that any costs, whether legal or settlement costs, associated with these cases will be material to the Partnership's overall operations. The Partnership is unaware of any other pending or outstanding litigation that is not of a routine nature arising in the ordinary course of business. Note H - Sale of Property On August 1, 2000, the Partnership sold Countrywood Village to an unrelated third party, for net proceeds of approximately $17,385,000 after payment of closing costs. During the year ended December 31, 2000, the Partnership realized a gain of approximately $12,451,000 as a result of the sale. In addition, the Partnership recorded an extraordinary loss on early extinguishment of debt of approximately $246,000 as a result of unamortized loan costs and debt discount being written off and a prepayment penalty of approximately $116,000 relating to the prepayment of the mortgage encumbering the property. Pursuant to the Partnership Agreement and in connection with the sale, the Corporate General Partner is entitled to a commission of up to 1% for its assistance in the sale. Payment of such commission is subordinate to the limited partners receiving a cumulative 7% return on their investment. This return has not yet been met and accordingly, the $178,000 was accrued and unpaid at December 31, 2001. Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. PART III Item 9. Directors, Executive Officers, Promoters and Control Persons, Compliance with Section 16(a) of the Exchange Act The Registrant has no officers or directors. The Corporate General Partner is Shelter Realty IV Corporation. The names and ages of, as well as the position and offices held by, the present executive officers and director of the Corporate General Partner are set forth below. There are no family relationships between or among any officers or directors. Name Age Position Patrick J. Foye 44 Executive Vice President and Director Martha L. Long 42 Senior Vice President and Controller Patrick J. Foye has been Executive Vice President and Director of the Corporate General Partner since October 1, 1998. Mr. Foye has served as Executive Vice President of AIMCO since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power Authority and serves as a member of the New York State Privatization Council. He received a B.A. from Fordham College and a J.D. from Fordham University Law School. Martha L. Long has been Senior Vice President and Controller of the Corporate General Partner since October 1998 as a result of the acquisition of Insignia Financial Group, Inc. As of February 2001, Ms. Long was also appointed head of the service business for AIMCO. From June 1994 until January 1997, she was the Controller for Insignia, and was promoted to Senior Vice President - Finance and Controller in January 1997, retaining that title until October 1998. From 1988 to June 1994, Ms. Long was Senior Vice President and Controller for The First Savings Bank, FSB in Greenville, South Carolina. One or more of the above persons are also directors and/or officers of a general partner (or general partner of a general partner) of limited partnerships which either have a class of securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, or are subject to the reporting requirements of Section 15(d) of such Act. Further, one or more of the above persons are also directors and/or officers of Apartment Investment and Management Company and the general partner of AIMCO Properties, L.P., entities that have a class of securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, or are subject to the reporting requirements of Section 15 (d) of such Act. The executive officers and director of the Corporate General Partner fulfill the obligations of the Audit Committee and oversee the Partnership's financial reporting process on behalf of the Corporate General Partner. Management has the primary responsibility for the financial statements and the reporting process including the systems of internal controls. In fulfilling its oversight responsibilities, the executive officers and director of the Corporate General Partner reviewed the audited financial statements with management including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements. The executive officers and director of the Corporate General Partner reviewed with the independent auditors, who are responsible for expressing an opinion on the conformity of those audited financial statements with accounting principles generally accepted in the United States, their judgments as to the quality, not just the acceptability, of the Partnership's accounting principles and such other matters as are required to be discussed with the Audit Committee or its equivalent under auditing standards generally accepted in the United States. In addition, the Partnership has discussed with the independent auditors the auditors' independence from management and the Partnership including the matters in the written disclosures required by the Independence Standards Board and considered the compatibility of non-audit services with the auditors' independence. The executive officers and director of the Corporate General Partner discussed with the Partnership's independent auditors the overall scope and plans for their audit. In reliance on the reviews and discussions referred to above, the executive officers and director of the Corporate General Partner has approved the inclusion of the audited financial statements in the Form 10-KSB for the year ended December 31, 2001 for filing with the Securities and Exchange Commission. The Corporate General Partner has reappointed Ernst & Young LLP as independent auditors to audit the financial statements of the Partnership for the current fiscal year. Fees for the last fiscal year were audit services of approximately $41,000 and non-audit services (principally tax-related) of approximately $21,000. Item 10. Executive Compensation None of the directors and officers of the Corporate General Partner received any remuneration from the Registrant. Item 11. Security Ownership of Certain Beneficial Owners and Management Except as noted below, no person or entity was known by the Registrant to be the beneficial owner of more than 5% of the Limited Partnership Units of the Registrant as of December 31, 2001. Entity Number of Units Percentage Cooper River Properties, LLC (an affiliate of AIMCO) 3,685 7.37% Insignia Properties, LP (an affiliate of AIMCO) 16,052 32.11% AIMCO Properties, L.P. (an affiliate of AIMCO) 13,238 26.48% Cooper River Properties, LLC and Insignia Properties LP are indirectly ultimately owned by AIMCO. Their business addresses are 55 Beattie Place, Greenville, South Carolina 29602. AIMCO Properties, L.P. is indirectly ultimately owned by AIMCO. Its business address is 2000 South Colorado Boulevard, Denver, Colorado. No director or officer of the Corporate General Partner owns any Units. The Corporate General Partner owns 100 Units as required by the terms of the Partnership Agreement governing the Partnership. AIMCO Properties, L.P., the other general partner, acquired 492 Units during the current fiscal year. Item 12. Certain Relationships and Related Transactions The Partnership has no employees and is dependent on the Corporate General Partner and its affiliates for the management and administration of all Partnership activities. The Partnership Agreement provides for (i) certain payments to affiliates for services and (ii) reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following payments were paid or accrued to the Corporate General Partner and affiliates during the years ended December 31, 2001 and 2000: Years Ended December 31, 2001 2000 (in thousands) Property management fees $ 525 $ 552 Reimbursement for services of affiliates 641 677 Commission to General Partner -- 178 Affiliates of the Corporate General Partner are entitled to receive 5% of gross receipts from all of the Registrant's properties as compensation for providing property management services. The Registrant paid to such affiliates approximately $525,000 and $552,000 during the years ended December 31, 2001 and 2000, respectively. Affiliates of the Corporate General Partner received reimbursement of accountable administrative expenses amounting to approximately $641,000 and $677,000 for the years ended December 31, 2001 and 2000, respectively. Included in these amounts are fees related to construction management services provided by an affiliate of the Corporate General Partner of approximately $351,000 and $331,000 for the years ended December 31, 2001 and 2000, respectively. The construction management service fees are calculated based on a percentage of current and certain prior year additions to the investment property and are being depreciated over 15 years. Pursuant to the Partnership Agreement and in connection with the sale of Countrywood Village, the Corporate General Partner is entitled to a commission of up to 1% for its assistance in the sale. Payment of such commission is subordinate to the limited partners receiving a cumulative 7% return on their investment. This return has not yet been met, and accordingly, the $178,000 was accrued and is included in other liabilities in the accompanying consolidated balance sheet at December 31, 2001. Beginning in 2001, the Partnership began insuring its properties up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers compensation, property casualty and vehicle liability. The Partnership insures its properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the Corporate General Partner. During the year ended December 31, 2001, the Partnership paid AIMCO and its affiliates approximately $155,000 for insurance coverage and fees associated with policy claims administration. In addition to its indirect ownership of the general partner interests in the Partnership, AIMCO and its affiliates owned 32,975 limited partnership units (the "Units") in the Partnership representing 65.96% of the outstanding Units at December 31, 2001. A number of these Units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO either through private purchases or tender offers. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters which would include voting on certain amendments to the Partnership Agreement and voting to remove the Corporate General Partner. As a result of its ownership of 65.96% of the outstanding Units, AIMCO is in a position to control all such voting decisions with respect to the Registrant. When voting on matters, AIMCO would in all likelihood vote the Units it acquired in a manner favorable to the interest of the Corporate General Partner because of its affiliation with the Corporate General Partner. Item 13. Exhibits and Reports on Form 8-K (a) Exhibits: None. (b) Reports on Form 8-K filed in the fourth quarter of fiscal year 2001: None. SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SHELTER PROPERTIES IV By: Shelter Realty IV Corporation Corporate General Partner By: /s/Patrick J. Foye Patrick J. Foye Executive Vice President By: /s/Martha L. Long Martha L. Long Senior Vice President and Controller Date: In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities on the date indicated. /s/Patrick J. Foye Executive Vice President Date: Patrick J. Foye and Director /s/Martha L. Long Senior Vice President Date: Martha L. Long and Controller EXHIBIT INDEX Exhibit Description of Exhibit 3 See Exhibit 4(a) 4 (a) Amended and Restated Certificate and Agreement of Limited Partnership (included as Exhibit A to the Prospectus of Registrant dated June 8, 1982 contained in Amendment No. 1 to Registration Statement No. 2-77217, of Registrant filed June 8, 1982 (the "Prospectus") and incorporated herein by reference). (b) Subscription Agreement and Signature Page (included as Exhibit 8 to the Prospectus and incorporated herein by reference). 10(i) Contracts related to acquisition of properties: (a) Real Estate Sales Agreement dated May 5, 1982, First Modification to Real Estate Agreement dated June 18, 1982 (filed as Exhibit 12(b) to Amendment No. 1 to Registration Statement No. 2-77217 of Registrant filed June 8, 1982 and incorporated herein by reference) and Second Modification to Real Estate Sales Agreement dated September 30, 1982 between Baymeadows Associates and U.S. Shelter Corporation to purchase Baymeadows Apartments (filed as Exhibit 10(a) to Form 10-K of Registrant dated January 26, 1983 and incorporated herein by reference). (b) Agreement for Purchase and Sale dated May 14, 1982 between Lincoln Spartanburg Corners Associates and U.S. Shelter Corporation to purchase The Corners Apartments. (Filed as Exhibit 12(a) to Amendment No. 1 to Registration Statement, No. 2-77217, of Registrant filed June 8, 1982 and incorporated herein by reference.) (c) Real Estate Purchase Agreement dated October 11, 1982 and Second Addendum to Real Estate Purchase Agreement dated December 10, 1982 between Rushcreek Village Apartments, Ltd. And U.S. Shelter Corporation to purchase Rushcreek Village Apartments. (Filed as Exhibit 10(a) to Form 8-K of Registrant dated December 15, 1982 and incorporated herein by reference.) (d) Real Estate Purchase Agreement dated December 3, 1982 between Quail Run Apartments, a Limited Partnership and Percival Partnership and U.S. Shelter Corporation to purchase Quail Run Apartments. (Filed as Exhibit 10(b) to Form 8-K of Registrant dated December 15, 1982 and incorporated herein by reference.) (e) Real Estate Purchase Agreement dated March 13, 1983 between Europco Management Company of America, Inc. and U.S. Shelter Corporation to purchase Countrywood Village Apartments. (Filed as Exhibit 10 to Form 8-K of Registrant dated March 31, 1983 and incorporated herein by reference.) (ii) Form of Management Agreement with U.S. Shelter Corporation subsequently assigned to Shelter Management Group, L.P. (now known as Insignia Management Group, L.P.). (Filed with Amendment No. 1 of Registration Statement No. 2-86995 of Registrant filed March 21, 1984 and incorporation herein by reference.) (iii) Contracts related to refinancing of debt: (a) First Deeds of Trust and Security Agreements dated October 28, 1992 between Shelter Properties IV and Joseph Philip Forte (Trustee) and First Commonwealth Realty Credit Corporation, a Virginia Corporation, securing the following properties: Baymeadows and Quail Run.* (b) Second Deeds of Trust and Security Agreements dated October 28, 1992 between Shelter Properties IV and Joseph Philip Forte (Trustee) and First Commonwealth Realty Credit Corporation, a Virginia Corporation, securing the following properties: Baymeadows and Quail Run.* (c) First Assignments of Leases and Rents dated October 28, 1992 between Shelter Properties IV and Joseph Philip Forte (Trustee) and First Commonwealth Realty Credit Corporation, a Virginia Corporation, securing the following properties: Baymeadows and Quail Run.* (d) Second Assignment of Leases and Rents dated October 28, 1992 between Shelter Properties IV and Joseph Philip Forte (Trustee) and First Commonwealth Realty Credit Corporation, a Virginia Corporation, securing the following properties: Baymeadows and Quail Run.* (e) First Deeds of Trust Notes dated October 28, 1992 between Shelter Properties IV and First Commonwealth Realty Credit Corporation, relating to the following properties: Baymeadows and Quail Run.* (f) Second Deeds of Trust Notes dated October 28, 1992 between Shelter Properties IV and First Commonwealth Realty Credit Corporation, relating to the following properties: Baymeadows and Quail Run.* *Filed as Exhibits 10 (iii) a through 10 (iii) f, respectively, to Form 10-KSB - Annual or Transitional Report filed January 29, 1993 and incorporated herein by reference. 28 (a) Agreement of Limited Partnership for Quail Run IV Limited Partnership between Shelter IV GP Limited Partnership and Shelter Properties IV entered into on February 12, 1992. (Filed as Exhibit 28 to Form 10QSB - Quarterly or Transitional Report filed June 11, 1993 and incorporated herein by reference.) (iv) Contracts related to the sale of Countrywood: (a) Purchase and Sale Contract between Shelter Properties IV and DCF, Sr., LLC effective August 1, 2000. (Filed as Exhibit 10.4(a) to Form 8K of Registrant dated August 1, 2000 and incorporated herein by reference.) (b) First Amendment to Purchase and Sale Agreement between Shelter Properties IV and DCF, Sr., LLC effective August 1, 2000. (Filed as Exhibit 10.4(b) to Form 8K of Registrant dated August 1, 2000 and incorporated herein by reference.) (c) Second Amendment to Purchase and Sale Agreement between Shelter Properties IV and DCF, Sr., LLC effective August 1, 2000. (Filed as Exhibit 10.4(c) to Form 8K of Registrant dated August 1, 2000 and incorporated herein by reference.) (d) Third Amendment to Purchase and Sale Agreement between Shelter Properties IV and DCF, Sr., LLC effective August 1, 2000. . (Filed as Exhibit 10.4(d) to Form 8K of Registrant dated August 1, 2000 and incorporated herein by reference.) (e) Fourth Amendment to Purchase and Sale Agreement between Shelter Properties IV and DCF, Sr., LLC effective August 1, 2000. (Filed as Exhibit 10.4(e) to Form 8K of Registrant dated August 1, 2000 and incorporated herein by reference.)