FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Quarterly or Transitional Report
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________to _________
Commission file number 0-10260
SHELTER PROPERTIES III
(Exact name of small business issuer as specified in its charter)
South Carolina 57-0718508
(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)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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____
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
SHELTER PROPERTIES III
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
March 31, 2002
Assets
Cash and cash equivalents $ 323
Receivables and deposits 226
Restricted escrows 136
Other assets 513
Investment properties:
Land $ 1,281
Buildings and related personal property 27,774
29,055
Less accumulated depreciation (18,505) 10,550
$ 11,748
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 62
Tenant security deposit liabilities 94
Accrued property taxes 110
Other liabilities 554
Mortgage notes payable 14,885
Partners' Deficit
General partners $ (105)
Limited partners (55,000 units issued and
outstanding) (3,852) (3,957)
$ 11,748
See Accompanying Notes to Consolidated Financial Statements
b)
SHELTER PROPERTIES III
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended
March 31,
2002 2001
Revenues:
Rental income $1,296 $1,314
Other income 138 129
Total revenues 1,434 1,443
Expenses:
Operating 589 569
General and administrative 87 76
Depreciation 276 272
Interest 280 286
Property taxes 111 108
Total expenses 1,343 1,311
Net income $ 91 $ 132
Net income allocated to general partners (1%) $ 1 $ 1
Net income allocated to limited partners (99%) 90 131
$ 91 $ 132
Net income per limited partnership unit $ 1.64 $ 2.38
Distributions per limited partnership unit $ -- $17.28
See Accompanying Notes to Consolidated Financial Statements
c)
SHELTER PROPERTIES III
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partners Partners Total
Original capital contributions 55,000 $ 2 $27,500 $27,502
Partners' deficit at
December 31, 2001 55,000 $ (106) $(3,942) $(4,048)
Net income for the three months
ended March 31, 2002 -- 1 90 91
Partners' deficit at
March 31, 2002 55,000 $ (105) $(3,852) $(3,957)
See Accompanying Notes to Consolidated Financial Statements
d)
SHELTER PROPERTIES III
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
2002 2001
Cash flows from operating activities:
Net income $ 91 $ 132
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 276 272
Amortization of discounts and loan costs 8 8
Change in accounts:
Receivables and deposits 12 263
Other assets (82) (89)
Accounts payable (15) (30)
Tenant security deposit liabilities (3) --
Accrued property taxes (175) (167)
Other liabilities 150 93
Net cash provided by operating activities 262 482
Cash flows from investing activities:
Property improvements and replacements (106) (138)
Net withdrawals from restricted escrows -- 599
Net cash (used in) provided by investing
activities (106) 461
Cash flows from financing activities:
Distributions to partners -- (960)
Payments on mortgage notes payable (70) (58)
Net cash used in financing activities (70) (1,018)
Net increase (decrease) in cash and cash equivalents 86 (75)
Cash and cash equivalents at beginning of period 237 665
Cash and cash equivalents at end of period $ 323 $ 590
Supplemental disclosure of cash flow information:
Cash paid for interest $ 213 $ 197
See Accompanying Notes to Consolidated Financial Statements
e)
SHELTER PROPERTIES III
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Shelter
Properties III (the "Partnership" or "Registrant") have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310 (b) of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The general partner responsible for management of the
Partnership's business is Shelter Realty III 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. In the opinion of the Corporate
General Partner, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three month period ended March 31, 2002, are not necessarily
indicative of the results that may be expected for the fiscal year ending
December 31, 2002. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Partnership's Annual Report on
Form 10-KSB for the year ended December 31, 2001.
Note B - Reconciliation of Cash Flows
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 provided by 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.
For the Three Months Ended
March 31,
2002 2001
(in thousands)
Net cash provided by operating activities $ 262 $ 482
Payments on mortgage notes payable (70) (58)
Property improvements and replacements (106) (138)
Change in restricted escrows, net -- 599
Changes in reserves for net operating
assets 113 (70)
Additional reserves (91) (391)
Net cash provided by operations $ 108 $ 424
The Corporate General Partner reserved approximately $91,000 and $391,000 at
March 31, 2002 and 2001, respectively, to fund capital improvements and repairs
at the Partnership's four investment properties.
Note C - 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) payments to
affiliates for services and (ii) reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership.
During the three months ended March 31, 2002 and 2001, affiliates of the
Corporate General Partner were entitled to receive 5% of gross receipts from all
of the Registrant's properties for providing property management services. The
Partnership paid to such affiliates approximately $74,000 and $73,000 for the
three months ended March 31, 2002 and 2001, respectively, which is included in
operating expenses.
An affiliate of the Corporate General Partner received reimbursement of
accountable administrative expenses amounting to approximately $60,000 and
$46,000 for the three months ended March 31, 2002 and 2001, respectively, which
is included in general and administrative expenses and investment properties.
Included in these amounts are fees related to construction management services
provided by an affiliate of the Corporate General Partner of approximately
$1,000 for the three months ended March 31, 2002. There were no such fees for
the three months ended March 31, 2001. The construction management service fees
are calculated based on a percentage of current year additions to investment
properties.
During 1986 a liability of approximately $185,000 was incurred to the general
partners for sales commissions earned. Pursuant to the Partnership Agreement,
this liability cannot be paid until certain levels of returns are received by
the limited partners. As of March 31, 2002, the level of return to the limited
partners has not been met.
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 three months ended
March 31, 2002 and 2001, the Partnership was charged by AIMCO and its affiliates
approximately $62,000 and $82,000, respectively, for insurance coverage and fees
associated with policy claims administration.
Note D - 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 oppose the motion. On April 29, 2002, the Court heard argument on the
motion and ordered further briefing after which time the matter will be taken
under submission. 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.
On March 27, 2002, the plaintiffs filed a notice appealing the order striking
the complaint.
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 2. Management's Discussion and Analysis or Plan of Operation
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the Registrant from time to time. The
discussions 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.
The Partnership's investment properties consist of four apartment complexes. The
following table sets forth the average occupancy of the properties for each of
the three months ended March 31, 2002 and 2001:
Average
Occupancy
Property 2002 2001
Essex Park Apartments
Columbia, South Carolina 88% 91%
Colony House Apartments
Mufreesboro, Tennessee 94% 88%
North River Village Apartments
Atlanta, Georgia 82% 88%
Willowick Apartments
Greenville, South Carolina 91% 93%
The Corporate General Partner attributes the increase in occupancy at Colony
House Apartments to an increase in the student population during current year.
The decrease in occupancy at North River Village Apartments and Essex Park
Apartments is due to the competitive market of the apartment industry in the
Atlanta and Columbia areas.
Results of Operations
The Registrant's net income for the three months ended March 31, 2002 was
approximately $91,000 as compared to approximately $132,000 for the three months
ended March 31, 2001. The decrease in net income is due to a decrease in total
revenues and an increase in total expenses. The decrease in total revenues is
due to a decrease in rental income partially offset by an increase in other
income. Rental income decreased due to decreases in occupancy at Essex Park
Apartments and North River Village Apartments partially offset by an increase in
occupancy at Colony House Apartments. Other income increased due to an increase
in utility reimbursements at Essex Park Apartments and North River Village
Apartments partially offset by a decrease in interest income as a result of
lower cash balances cash held in interest bearing accounts for the Partnership.
The increase in total expenses was primarily due to an increase in operating
expense and general and administrative expense. Operating expense increased due
to an increase in property expense and insurance expense. Property expense
increased due to an increase in utility costs at Essex Park Apartments and North
River Village Apartments and corporate unit expenses at Essex Park Apartments
partially offset by a decrease in employee salaries at Colony House Apartments
and Willowick Apartments. Insurance expense increased due to an increase in
insurance premiums at all of the Partnership's investment properties.
General and administrative expense increased due to an increase in the cost of
services included in the management reimbursements to the Corporate General
Partner allowed under the Partnership Agreement. Also included in general and
administrative expenses for the three months ended March 31, 2002 and 2001 are
costs associated with the quarterly and annual communications with investors and
regulatory agencies and the annual audit and appraisals required by the
Partnership Agreement.
As part of the ongoing business plan of the Registrant, the Corporate General
Partner monitors the rental market environments of its investment properties to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expenses. As part of
this plan, the Corporate General Partner attempts to protect the Partnership
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 March 31, 2002, the Registrant had cash and cash equivalents of approximately
$323,000 as compared to approximately $590,000 at March 31, 2001. Cash and cash
equivalents increased approximately $86,000 for the three months ended March 31,
2002 from the Registrant's year end, primarily due to approximately $262,000 of
cash provided by operating activities which was partially offset by
approximately $106,000 and $70,000 of cash used in investing and financing
activities, respectively. Cash used in investing activities consisted of
property improvements and replacements. Cash used in financing activities
consisted of payments of principal 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 Registrant and to comply with
Federal, state and local legal and regulatory requirements. Capital improvements
completed at each of the Registrant's properties are detailed below.
Essex Park Apartments
The Partnership has completed approximately $49,000 in capital expenditures as
of March 31, 2002, consisting primarily of appliance and floor covering
replacements, cabinets, fencing, plumbing repairs and structural and other
building improvements. These improvements were funded primarily from operating
cash flow. The Partnership has budgeted, but is not limited to, approximately
$163,000 for capital improvements during 2002 at Essex Park Apartments,
consisting primarily of appliance and floor covering replacements, air
conditioning replacements, and structural improvements.
Colony House Apartments
The Partnership has completed approximately $19,000 in capital expenditures as
of March 31, 2002, consisting primarily of appliance and floor covering
replacements, plumbing improvements, and air conditioning replacements. These
improvements were funded from operating cash flow. The Partnership has budgeted,
but is not limited to, approximately $63,000 for capital improvements during
2002 at Colony House Apartments consisting primarily of appliance and floor
covering replacements, HVAC, mini blinds, fencing, major landscaping, door
replacement and structural improvements.
North River Village Apartments
The Partnership has completed approximately $18,000 in capital expenditures as
of March 31, 2002, consisting primarily of office computers and appliance and
floor covering replacements. These improvements were funded primarily from
operating cash flow. The Partnership has budgeted, but is not limited to,
approximately $49,000 for capital improvements during 2002 at North River
Village Apartments, consisting primarily of appliance and floor covering
replacements.
Willowick Apartments
The Partnership has completed approximately $20,000 in capital expenditures as
of March 31, 2002, consisting primarily of floor covering and appliance
replacements. These improvements were funded primarily from operating cash flow.
The Partnership has budgeted, but is not limited to, approximately $68,000 for
capital improvements during 2002 at Willowick Apartments, consisting primarily
of appliance and floor covering replacements, HVAC, interior decoration, major
landscaping and structural improvements.
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) of the Registrant. The mortgage
indebtedness of approximately $14,885,000, net of discount, is amortized over
varying periods. A balloon payment of $1,543,000 is due in October 2003 at North
River Village. All remaining debt is scheduled to be fully amortized in January
2021. The Corporate General Partner will attempt to refinance such indebtedness
and/or sell the properties prior to such maturity dates. If the properties
cannot be refinanced or sold for a sufficient amount, the Registrant will risk
losing such properties through foreclosure.
The Partnership distributed the following amounts during the three months ended
March 31, 2002 and 2001 (in thousands, except per unit data):
Three Months Per Limited Three Months Per Limited
Ended Partnership Ended Partnership
March 31, 2002 Unit March 31, 2001 Unit
Operations $ -- $ -- $ 960 $17.28
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, however, that the Partnership will generate sufficient funds from
operations, after planned capital improvement expenditures, to permit any
additional distributions to its partners in 2002 or subsequent periods. In
addition, the Partnership may be restricted from making distributions if the
amount in the reserve account for North River Village Apartments maintained by
the mortgage lender is less than $200 per apartment unit. As of March 31, 2002
the reserve account was fully funded with approximately $54,000 on deposit with
the mortgage lender.
In addition to its indirect ownership of the combined general partner interests
in the Partnership, AIMCO and its affiliates owned 34,685 limited partnership
units in the Partnership representing 63.06% of the outstanding units at March
31, 2002. 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
make one or more additional offers to acquire additional limited partnership
interests in the Partnership for cash or in exchange for units in the operating
partnership of AIMCO. 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 general partners. As a result of its
ownership of 63.06% 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.
PART II - OTHER INFORMATION
ITEM 1. 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 oppose the motion. On April 29, 2002, the Court heard argument on the
motion and ordered further briefing after which time the matter will be taken
under submission. 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.
On March 27, 2002, the plaintiffs filed a notice appealing the order striking
the complaint.
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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
None.
b) Reports on Form 8-K filed during the quarter ended March 31,
2002:
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
SHELTER PROPERTIES III
By: Shelter Realty III 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: May 13, 2002