<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
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Commission file number 0-11149
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CAPITAL REALTY INVESTORS, LTD.
- -----------------------------------------------------------------------
(Name of small business issuer in its charter)
District of Columbia 52-1219926
- ----------------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11200 Rockville Pike, Rockville, Maryland 20852
- ----------------------------------------- ---------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (301) 468-9200
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
NONE N/A
- ----------------------------------------- ----------------------
Securities registered pursuant to Section 12(g) of the Act:
LIMITED PARTNER UNITS
- ------------------------------------------------------------------------
(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 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 disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not 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 $850,225.
The partnership interests of the Registrant are not traded in any market.
Therefore, the partnership interests had neither a market selling price nor an
average bid or asked price within the 60 days prior to the date of this filing.
<PAGE>
CAPITAL REALTY INVESTORS, LTD.
(a limited partnership)
1998 ANNUAL REPORT ON FORM 10-KSB
TABLE OF CONTENTS
Page
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PART I
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Item 1. Business . . . . . . . . . . . . . . . . . . . . I-1
Item 2. Properties . . . . . . . . . . . . . . . . . . . I-5
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . I-5
Item 4. Submission of Matters to a Vote
of Security Holders . . . . . . . . . . . . . . I-5
PART II
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Item 5. Market for the Registrant's Partnership
Interests and Related Partnership Matters . . II-1
Item 6. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . II-1
Item 7. Financial Statements . . . . . . . . . . . . . . II-7
Item 8. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . II-7
PART III
--------
Item 9. Directors and Executive Officers
of the Registrant . . . . . . . . . . . . . . . III-1
Item 10. Executive Compensation . . . . . . . . . . . . . III-2
Item 11. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . III-2
Item 12. Certain Relationships and Related Transactions . III-3
Item 13. Exhibits and Reports on Form 8-K . . . . . . . . III-4
Signatures . . . . . . . . . . . . . . . . . . . . . . . . III-6
Financial Statements . . . . . . . . . . . . . . . . . . . III-7
<PAGE>
PART I
------
ITEM 1. BUSINESS
--------
Capital Realty Investors, Ltd. (the Partnership) is a limited partnership
which was formed under the District of Columbia Limited Partnership Act on June
1, 1981. On December 31, 1981, the Partnership commenced offering 30,000 units
of limited partner interests through a public offering which was managed by
Merrill Lynch, Pierce, Fenner & Smith, Incorporated. The Partnership closed the
offering on December 31, 1982 when 24,837 units of limited partner interests
became fully subscribed.
The General Partners of the Partnership are C.R.I., Inc. (CRI), the
Managing General Partner, current and former shareholders of CRI and Rockville
Pike Associates, Ltd., a Maryland limited partnership which includes the
shareholders of CRI and several former officers and employees of CRI. Services
for the Partnership are performed by CRI, as the Partnership has no employees of
its own.
The Partnership was formed to invest in real estate, which is the
Partnership's principal business activity, by acquiring and holding a limited
partner interest in limited partnerships (Local Partnerships). The Partnership
originally made investments in eighteen Local Partnerships. As of December 31,
1998, the Partnership had investments in seventeen Local Partnerships. Each of
these Local Partnerships owns a federal or state government-assisted or
conventionally financed apartment complex, which provides housing principally to
the elderly or to individuals and families of low or moderate income. The
original objectives of these investments, not necessarily in order of
importance, were to:
(1) preserve and protect the Partnership's capital;
(2) provide, during the early years of the Partnership's operations,
current tax benefits to the partners in the form of tax losses which
the partners may use to offset income from other sources;
(3) provide capital appreciation through increases in the value of the
Partnership's investments and increased equity through periodic
payments on the indebtedness on the apartment complexes; and
(4) provide cash distributions from sale or refinancing of the
Partnership's investments and, on a limited basis, from rental
operations.
See Part II, Item 6, Management's Discussion and Analysis of Financial Condition
and Results of Operations, for a discussion of factors affecting the original
investment objectives.
The Local Partnerships in which the Partnership has invested were organized
by private developers who acquired the sites, or options thereon, applied for
applicable mortgage insurance and/or subsidies, and remain as the local general
partners in the Local Partnerships. As a result of its investment in the Local
partnership, the Partnership became the principal limited partner in these Local
Partnerships. However, in the event of non-compliance with the Local
Partnerships' partnership agreements, the local general partner may be removed
and replaced with another local general partner or with an affiliate of the
Partnership's Managing General Partner. As a limited partner, the Partnership's
legal liability for obligations of the Local Partnerships is limited to its
investment. In most cases, an affiliate of the Managing General Partner of the
Partnership is also a general partner of the Local Partnerships. In most cases,
the local general partners of the Local Partnerships retain responsibility for
developing, constructing, maintaining, operating and managing the projects.
I-1
<PAGE>
PART I
------
ITEM 1. BUSINESS - continued
--------
The local general partners and affiliates of the Managing General Partner may
operate other apartment complexes which may be in competition for eligible
tenants with the Local Partnerships' apartment complexes.
Although each of the Local Partnerships in which the Partnership has
invested owns an apartment complex which must compete in the market place for
tenants, interest subsidies and/or rent supplements from governmental agencies
generally make it possible to offer certain of these dwelling units to eligible
tenants at a cost significantly below the market rate for comparable
conventionally financed dwelling units. Based on available data, the Managing
General Partner believes there to be no material risk of market competition in
the operations of the apartment complexes described below which would adversely
impact the Partnership, except in specific circumstances as described in Part
II, Item 6, Management's Discussion and Analysis of Financial Condition and
Results of Operations.
A schedule of the apartment complexes owned by Local Partnerships in which
the Partnership is a limited partner follows.
I-2
<PAGE>
SCHEDULE OF PROJECTS OWNED BY LOCAL PARTNERSHIPS IN WHICH
CAPITAL REALTY INVESTORS, LTD. HAS AN INVESTMENT(1)
<TABLE>
<CAPTION>
Units Expiration
Mortgage Authorized for of
Name and Location Payable at Financed and/or Insured Number of Rental Asst. Section 8
of Apartment Complex 12/31/98 (2) and/or Subsidized Under Rental Units Under Sec. 8 HAP Contract
- -------------------- ------------ ----------------------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Baltic Plaza $ 7,765,266 New Jersey Housing and 169 168 02/10/03
Atlantic City, NJ Mortgage Finance Agency
Capitol Commons 6,831,522 Michigan State Housing 200 200 05/31/02
Lansing, MI Development Authority
Chestnut 2,536,108 California Housing 90 88 01/13/13
Fresno, CA Finance Agency
Court Place 6,482,131 Illinois Housing 160 160 02/01/13
Pekin, IL Development Authority (IHDA)
Frederick Heights 3,035,470 Section 221(d)(4) of the 156 0 N/A
Frederick, MD National Housing Act (NHA)
Frenchman's Wharf I 6,499,180 Section 221(d)(4) 320 31 11/30/99 (4)
New Orleans, LA of the NHA
Hillview Terrace 2,534,166 Rural Economic Community 125 115 09/30/00
Traverse City, MI Development (RECD)
Lihue Gardens 2,802,163 RECD 58 58 02/22/03
Lihue, Kauai, HI
Linden Place 9,565,091 IHDA 190 190 01/01/22
Arlington Heights, IL
New Charon Woods Apts. 2,492,694 Delaware Trust Company 50 50 07/31/04
Deptford, NJ
Park Glen 5,266,228 IHDA 125 125 08/01/23
Taylorville, IL
Shallowford Oaks 5,838,177 1996 Multifamily Trust 204 41 07/31/01
Chamblee, GA
Sundance Apts. 2,454,719 Section 221(d)(4) of the NHA 60 60 05/07/02
Bakersfield, CA
Tandem Townhouses 1,450,475 Pennsylvania Housing 48 47 08/28/12
Fairview Borough, PA Finance Agency
Warner House 2,022,640 Section 221(d)(4) of the NHA 60 60 09/01/01
Warren, OH
Continued
</TABLE>
I-3
<PAGE>
SCHEDULE OF PROJECTS OWNED BY LOCAL PARTNERSHIPS IN WHICH
CAPITAL REALTY INVESTORS, LTD. HAS AN INVESTMENT(1) - Continued
<TABLE>
<CAPTION>
Units Expiration
Mortgage Authorized for of
Name and Location Payable at Financed and/or Insured Number of Rental Asst. Section 8
of Apartment Complex 12/31/98 (2) and/or Subsidized Under Rental Units Under Sec. 8 HAP Contract
- -------------------- ------------ ----------------------------- ------------ -------------- ------------
<S> <C> <C> <C> <C> <C>
Westwood Village 1,513,945 Connecticut Housing Finance 48 48 02/01/12
New Haven, CT Authority
Winthrop Beach 1,076,960 First mortgage loan by First 69 0 N/A
Chicago, IL Federal Savings and Loan Assoc.
of Chicago; second mortgage loan
by Chicago Department of Housing
- -------------------- ------------ -------- ------
Totals 17 $ 70,166,935 2,132 1,441
============ ======== ======
</TABLE>
I-4
<PAGE>
SCHEDULE OF PROJECTS OWNED BY LOCAL PARTNERSHIPS IN WHICH
CAPITAL REALTY INVESTORS, LTD. HAS AN INVESTMENT(1) - Continued
<TABLE>
<CAPTION>
Average Effective Annual
Units Occupied As Rental Per Unit
Percentage of Total Units for the Years Ended
As of December 31, December 31,
Name and Location --------------------------------- -----------------------------------------------------
of Apartment Complex 1998 1997 1996 1995 1994 1998 1997 1996 1995 1994
- -------------------- ---- ---- ---- ---- ---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Baltic Plaza 99% 97% 100% 99% 99% $ 13,014 $ 12,981 $ 13,143 $ 13,106 $ 13,102
Atlantic City, NJ
Capitol Commons 96% 94% 98% 99% 99% 9,464 9,340 9,451 9,335 9,296
Lansing, MI
Chestnut 98% 98% 98% 98% 97% 7,523 7,459 7,580 7,369 7,441
Fresno, CA
Court Place 100% 100% 100% 100% 100% 12,555 12,483 12,191 11,997 11,657
Pekin, IL
Frederick Heights 97% 96% 96% 97% 97% 7,360 7,164 6,983 6,809 6,841
Frederick, MD
Frenchman's Wharf I 88% 91% 89% 92% 91% 4,514 4,499 4,403 4,246 4,148
New Orleans, LA
Hillview Terrace 99% 100% 99% 99% 100% 2,759 2,752 3,930 3,779 3,694
Traverse City, MI
Lihue Gardens 100% 95% 100% 100% 100% 10,792 11,139 11,359 11,164 10,552
Lihue, Kauai, HI
Linden Place 100% 100% 99% 100% 100% 13,944 13,246 12,880 12,637 12,387
Arlington Heights, IL
New Charon Woods Apts. 90% 100% 100% 94% 100% 11,401 11,826 11,805 11,589 11,060
Deptford, NJ
Park Glen 100% 100% 100% 100% 100% 9,535 9,415 9,303 9,250 9,221
Taylorville, IL
Shallowford Oaks 99% 99% 95% 100% 91% 7,379 7,162 7,002 6,934 5,930
Chamblee, GA
Sundance Apts. 100% 100% 100% 98% 100% 8,365 8,559 8,390 8,387 8,294
Bakersfield, CA
Tandem Townhouses 100% 100% 100% 100% 100% 9,289 9,223 8,859 8,798 8,789
Fairview Borough, PA
Warner House 100% 100% 98% 98% 95% 7,635 7,624 7,584 7,505 7,420
Warren, OH
Continued
</TABLE>
I-5
<PAGE>
SCHEDULE OF PROJECTS OWNED BY LOCAL PARTNERSHIPS IN WHICH
CAPITAL REALTY INVESTORS, LTD. HAS AN INVESTMENT(1) - Continued
<TABLE>
<CAPTION>
Average Effective Annual
Units Occupied As Rental Per Unit
Percentage of Total Units for the Years Ended
As of December 31, December 31,
Name and Location --------------------------------- -----------------------------------------------------
of Apartment Complex 1998 1997 1996 1995 1994 1998 1997 1996 1995 1994
- -------------------- ---- ---- ---- ---- ---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Westwood Village 100% 98% 96% 94% 100% 11,416 11,217 11,017 11,294 10,908
New Haven, CT
Winthrop Beach 90% 93% 94% 96% 94% 4,133 4,076 3,903 4,007 3,886
Chicago, IL
- -------------------- ---- ---- ---- ---- ---- -------- -------- -------- -------- --------
Totals (3) 17 97% 98% 98% 98% 98% $ 8,887 $ 8,833 $ 8,811 $ 8,718 $ 8,507
==== ==== ==== ==== ==== ======== ======== ======== ======== ========
</TABLE>
(1) All properties are multifamily housing complexes. No single
tenant/resident rents 10% or more of the rentable square footage.
Residential leases are typically one year or less in length, with varying
expiration dates, and substantially all rentable space is for residential
purposes.
(2) The amounts provided are the balances of mortgage loans payable of the
Local Partnerships as of December 31, 1998.
(3) The totals for the percentage of units occupied and the average effective
annual rental per unit are based on a simple average.
(4) The Section 8 contract expiration date reflects a one-year extension from
the original expiration date, in accordance with Federal legislation.
There were no contemplated sales of investments in partnerships as of
March 25, 1999.
ITEM 2. PROPERTIES
----------
Through its ownership of limited partner interests in Local Partnerships,
Capital Realty Investors, Ltd. indirectly holds an interest in the underlying
real estate. See Part I, Item 1 for information pertaining to these properties.
ITEM 3. LEGAL PROCEEDINGS
-----------------
There are no material legal proceedings to which the Partnership is a
party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of 1998.
I-6
<PAGE>
PART II
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ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP INTERESTS AND
-----------------------------------------------------
RELATED PARTNERSHIP MATTERS
---------------------------
(a) It is not anticipated that there will be any formal market for resale
of interests in the Partnership. As a result, investors may be unable
to sell or otherwise dispose of their interests in the Partnership.
(b) As of March 25, 1999, there were approximately 1,700 registered
holders of limited partner interests in the Partnership.
(c) No distributions were declared or paid by the Partnership during 1998
or 1997. The Partnership received distributions of $495,696 and
$492,235 from Local Partnerships during 1998 and 1997, respectively.
Some of the Local Partnerships operate under restrictions imposed by
the pertinent governmental agencies that limit the cash return
available to the Partnership.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
Capital Realty Investors, Ltd.'s (the Partnership) Management's Discussion
and Analysis of Financial Condition and Results of Operations section contains
information that may be considered forward looking, including statements
regarding the effect of governmental regulations. Actual results may differ
materially from those described in the forward looking statements and will be
affected by a variety of factors including national and local economic
conditions, the general level of interest rates, terms of governmental
regulations that affect the Partnership and interpretations of those
regulations, the competitive environment in which the Partnership operates, and
the availability of working capital.
General
-------
The Partnership has invested, through Local Partnerships, primarily in
federal or state government-assisted apartment complexes (the "properties")
intended to provide housing to low and moderate income tenants. In conjunction
with such governmental assistance, which includes federal and/or state financing
at below-market interest rates and rental subsidies, the Local Partnerships
agreed to regulatory limitations on (i) cash distributions, (ii) use of the
properties and (iii) sale or refinancing. These limitations typically were
designed to remain in place for the life of the mortgage.
The original investment objectives of the Partnership primarily were to
deliver tax benefits, as well as cash proceeds upon disposition of the
properties through the Partnership's investment in local limited partnerships.
Only limited annual cash distributions from property operations were projected
because of the regulatory restrictions on cash distributions from the
properties.
The original investment objectives of the Partnership have been affected by
the Tax Reform Act of 1986 which virtually eliminated many of the incentives for
the new construction or the sale of existing low income housing properties by
limiting the use of passive loss deductions. Therefore, the Managing General
Partner continues to concentrate on transferring the source of investment yield
from tax benefits to cash flow wherever possible and potentially enhancing the
II-1
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
ability of the Partnership to share in the appreciated value of the properties.
The acquisition of interests in certain Local Partnerships was paid for in
part by purchase money notes of the Partnership. The purchase money notes are
nonrecourse obligations of the Partnership which typically mature fifteen years
from the dates of acquisition of the interests in particular Local Partnerships
and are generally secured by the Partnership's interest in the Local
Partnership.
C.R.I., Inc. (the Managing General Partner) continues to evaluate the
Partnership's underlying apartment complexes to determine a strategy for
liquidating the Partnership. Issues that are at the forefront of the Managing
General Partner's strategic planning include: maturing purchase money notes,
expiring Section 8 Housing Assistance Payment (HAP) contracts, properties with
state housing financing or Rural Economic Community Development (RECD) agency
financing, and ending losses to the Partnership since the low-income housing
accelerated depreciation deductions are completely depleted at the property
levels.
Lake Properties Limited Partnership (Frenchman's Wharf I) has a Section 8
HAP contract covering 10% of the property's apartment units which expires during
1999. The Section 8 HAP contract provides rental subsidies to the property
owner for units occupied by low income tenants. If the contract is not
extended, there will likely be an increase in vacancy during the 6-12 months
after the contract expires. As residents in the low-income units move out, the
units will be made available to market-rate residents, as market conditions
allow.
Eight properties in the Partnership have mortgages financed by various
state housing agencies and two properties have mortgages financed by the RECD
agency. These properties have Section 8 HAP contracts in place for
approximately 100% of their apartment units. These Section 8 HAP contracts
begin to expire in September of 2000. It remains to be seen how the financing
agencies will deal with the expiration of the Section 8 HAP contracts. The
Managing General Partner is of the opinion that the agencies will strive to
preserve the units as low income, or affordable housing. This means that the
agencies probably will not allow a prepayment of the mortgage or a conversion of
the units to market rate housing.
Sales of properties with state agency or RECD financing will be extremely
difficult. Since the agency is unlikely to allow prepayment and/or sale for a
conversion to market rate housing, the buyers are limited to non-profit
organizations. Given the lack of interested buyers for such properties,
purchase offers received from non-profit organizations tend to be much lower per
apartment than those from profit-motivated companies.
The Managing General Partner is considering marketing, on a state-by-state
basis, one or more of the properties in which the Partnership invested with
properties in other portfolios sponsored by the Managing General Partner. This
may enhance the opportunity to sell these properties. Each property is
different, so it is impossible to predict if any of the Partnership's properties
might be included in such a combination sale.
Two properties in which the Partnership has invested, Winthrop Beach and
Frederick Heights, consist of market rate apartment units which have no Section
II-2
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
8 HAP contracts. Winthrop Beach, located in Chicago, Illinois, does not
generate positive cash flow. Frederick Heights, located in Frederick, Maryland,
generated positive cash flow of approximately $100,000 in 1998. The Managing
General Partner is monitoring the operations of both these properties for future
sale potential.
The Managing General Partner is working diligently on behalf of the
Partnership to produce the best results possible under these difficult
circumstances. While the Managing General Partner cannot predict the outcome
for any particular property at this time, the Managing General Partner will
continue to work with the Local Partnerships to develop strategies that make
sense for all parties involved.
Financial Condition/Liquidity
-----------------------------
As of December 31, 1998, the Partnership had approximately 1,700 investors
who subscribed to a total of 24,837 units of limited partnership interests in
the original amount of $24,837,000. The Partnership originally made investments
in 18 Local Partnerships, of which 17 remain at December 31, 1998. The
Partnership's liquidity, with unrestricted cash resources of $2,318,302 as of
December 31, 1998, along with anticipated future cash distributions from the
Local Partnerships, is expected to meet its current and anticipated operating
cash needs. As of December 31, 1998, $140,000 of cash equivalents were
restricted for the collateralization of a letter of credit which secured a
surety bond related to the stay of foreclosure action on Shallowford Oaks. See
the notes to the financial statements for further discussion concerning
Shallowford Oaks. As of March 25, 1999, there were no material commitments for
capital expenditures.
During 1998 and 1997, the Partnership received cash distributions of
$495,696 and $492,235, respectively, from the Local Partnerships.
The Partnership is the maker of purchase money notes which have matured and
have not been paid with respect to two Local Partnerships, Lake Properties
Limited Partnership (Frenchman's Wharf I) and ARA Associates-Shangri-La Ltd.
(Shallowford Oaks). The purchase money notes accrue interest and require
payment in full of all unpaid accrued interest and principal upon the occurrence
of certain events, such as the sale or refinancing of the underlying apartment
complex or the maturity of the respective purchase money note. The purchase
money notes, which are nonrecourse to the Partnership, are generally secured by
the Partnership's interest in the respective Local Partnerships. The amounts
due on the purchase money notes consist of outstanding principal and accrued
interest of approximately $4.479 million and $7.194 million, respectively, as of
December 31, 1998, and $4.479 million and $6.724 million, respectively,as of
December 31, 1997. The Managing General Partner is hopeful that an extension of
the purchase money notes' maturity dates can be negotiated. It is possible,
however, that the noteholders could refuse to negotiate or, even if extensions
are obtained, that the underlying properties' values will be insufficient to pay
off the purchase money notes at the time of sale or refinancing.
The Partnership's inability to pay these purchase money note principal and
accrued interest balances when due, and the resulting uncertainty regarding the
Partnership's continued ownership interest in the related Local Partnerships,
does not impact the Partnership's financial condition because the purchase money
II-3
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
notes are nonrecourse and secured solely by the Partnership's interest in the
related Local Partnerships. Therefore, should the investment in Frenchman's
Wharf I and/or Shallowford Oaks not produce sufficient value to satisfy the
related purchase money notes, the Partnership's exposure to loss is limited
because the amount of the nonrecourse indebtedness of each of the maturing
purchase money notes exceeds the carrying amount of the investment in and
advances to the related Local Partnerships. Thus, even a complete loss of one
or both of these Local Partnerships would not have a material impact on the
financial condition of the Partnership. However, since these notes remain
unpaid, the noteholders have the right to foreclose on the Partnership's
interest in the related Local Partnerships. In the event of a foreclosure, the
excess of the nonrecourse indebtedness over the carrying amount of the
Partnership's investment in the related Local Partnership would result in
cancellation of indebtedness income which would be taxable to Limited Partners
at a federal tax rate of up to 39.6%. Additionally, in the event of a
foreclosure, the Partnership would lose its investment in the Local Partnership
and, likewise, its share of future cash flow distributed by the Local
Partnership from rental operations, sales or refinancings. The Partnership did
not receive any distributions from Frenchman's Wharf I or Shallowford Oaks
during 1998 and 1997, and its aggregate share of loss for these two Local
Partnerships was $112,349 and $6,136 for the years ended December 31, 1998 and
1997, respectively. See the notes to the financial statements for additional
information pertaining to these purchase money notes.
The Partnership closely monitors its cash flow and liquidity position in an
effort to ensure that sufficient cash is available for operating requirements.
In 1998 and 1997, the receipt of distributions from Local Partnerships was
adequate to support operating cash requirements. Cash and cash equivalents
increased during 1998 primarily due to the receipt of distributions from
partnerships.
Results of Operations
---------------------
1998 versus 1997
- ----------------
The Partnership's net income for the year ended December 31, 1998 increased
from the corresponding period in 1997 principally due to an increase in share of
income from partnerships, which was primarily due to increased rental income and
decreased operating expenses at five properties. Contributing to the increase
in the Partnership's net income was an increase in interest income due to higher
cash and cash equivalent balances during 1998. Partially offsetting the
increase in the Partnership's net income was an increase in general and
administrative expenses primarily due to an increase in payroll costs associated
with the Shallowford Oaks foreclosure litigation and an increase in professional
fees resulting from a Frederick Heights market study.
For financial reporting purposes, the Partnership, as a limited partner in
the Local Partnerships, does not record losses from the Local Partnerships in
excess of its investment to the extent that the Partnership has no further
obligation to advance funds or provide financing to the Local Partnerships. As
a result, the Partnership's recognized losses for the years ended December 31,
1998 and 1997 did not include losses of $891,272 and $782,889, respectively.
The Partnership's net loss recognized from the Local Partnerships is generally
II-4
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
expected to decrease in subsequent years as the Partnership's investments in the
Local Partnerships are reduced to zero. Accordingly, excludable losses are
generally expected to increase. Distributions of $211,030 and $184,541,
received from eight and seven Local Partnerships, during 1998 and 1997,
respectively, were offset against the respective years' recorded losses because
these amounts were in excess of the Partnership's investment.
Inflation
---------
Inflation allows for increases in rental rates, usually offsetting any
higher operating and replacement costs. Furthermore, inflation generally does
not impact the fixed rate long-term financing under which the Partnership's real
property investments were purchased. Future inflation could allow for
appreciated values of the Local Partnerships' properties over an extended period
of time as rental revenues and replacement values gradually increase.
The following table reflects the combined rental revenues of the properties
for the five years ended December 31, 1998. Combined rental revenue amounts for
years prior to 1997 have been adjusted to reflect property sales in 1996.
II-5
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
<TABLE>
<CAPTION>
For the years ended December 31,
-----------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Combined Rental
Revenue $18,496,980 $18,256,810 $18,203,181 $17,950,982 $17,334,130
Annual Percentage
Increase 1.3% 0.3% 1.4% 3.6%
</TABLE>
Year 2000 Computer Issue
------------------------
The Year 2000 ("Y2K") computer issue refers to the inability of many
computer systems in use today to recognize "00" in the date field as the year
2000 and to recognize the year 2000 as a leap year. The Y2K problem arose
because, for many years, computer software programs, including programs embedded
in hardware, utilized only the last two digits to specify the year with the
assumption that the first two digits were "19." As a result, such programs may
not be able to recognize and process dates beyond 1999; rather they may
recognize and process "00," "01," "02,", etc., incorrectly as 1900, 1901, 1902,
instead of as 2000, 2001, 2002. In the opinion of computer experts, this could
cause such programs to create erroneous results, malfunction, or fail completely
unless corrective measures are taken.
The Partnership utilizes software and related computer technologies
essential to its operations that will be affected by the Y2K issue. To address
the issue, the Managing General Partner has developed and is currently
implementing a plan (the "Y2K Project") designed to ensure that the Y2K date
change will not have an adverse impact on the Partnership's operations. The Y2K
Project is on schedule and the Managing General Partner expects completion by
the end of 1999. The Y2K Project consists of four phases -- Planning,
Assessment, Implementation and Testing. The Planning Phase began early in 1998
and is complete. Under the Planning Phase, the Managing General Partner
conducted an inventory of all internal hardware and software systems, data
interfaces, business operations and non-information technology functions which
may be susceptible to the Y2K issue. This phase was completed at the end of
November, 1998. Under the next phase, the Assessment Phase, all applications
and functions identified in the Planning Phase were analyzed to determine Y2K
compliance and the materiality of each identified risk. In the event of
noncompliance, for material risks, timetables for corrective action, as well as
estimated costs to achieve compliance, were determined. This phase was
completed during the first quarter of 1999. The Implementation Phase is now
underway. Renovation and replacement of existing internal hardware and software
systems has begun and completion is expected by June 1999. Additionally, the
Managing General Partner is currently working with third party vendors, service
providers, Local Partnership managing general partners, and Local Partnership
property managers to verify their Y2K compliance, with completion expected by
June 1999. The Testing Phase, which will include testing of internal
II-6
<PAGE>
PART II
-------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
applications as well as some third party systems, began during January 1999 and
will continue throughout 1999. Contingency planning commenced during the fourth
quarter 1998 and will be completed by year-end 1999. The Managing General
Partner does not expect the expense associated with the Y2K Project to be
material.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The information required by this item is contained in Part III.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
None.
II-7
<PAGE>
PART III
--------
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
(a), (b) and (c)
The Partnership has no directors, executive officers or significant
employees of its own.
(a), (b), (c) and (e)
The names, ages and business experience of the directors and executive
officers of C.R.I., Inc. (CRI), the Managing General Partner of the
Partnership, are as follows:
William B. Dockser, 62, has been the Chairman of the Board of CRI and a Director
since 1974. Prior to forming CRI, he served as President of Kaufman and Broad
Asset Management, Inc., an affiliate of Kaufman and Broad, Inc., which managed a
number of publicly held limited partnerships created to invest in low and
moderate income multifamily apartment properties. For a period of 2-1/2 years
prior to joining Kaufman and Broad, he served in various positions at HUD,
culminating in the post of Deputy FHA Commissioner and Deputy Assistant
Secretary for Housing Production and Mortgage Credit, where he was responsible
for all federally insured housing production programs. Before coming to
Washington, Mr. Dockser was a practicing attorney in Boston and also was a
special Assistant Attorney General for the Commonwealth of Massachusetts. He
holds a Bachelor of Laws degree from Yale University Law School and a Bachelor
of Arts degree, cum laude, from Harvard University. He is also Chairman of the
Board and a Director of CRIIMI MAE Inc. and CRIIMI, Inc.
H. William Willoughby, 52, has been President, Secretary and a Director of CRI
since January 1990 and was Senior Executive Vice President, Secretary and a
Director of CRI from 1974 to 1989. He is principally responsible for the
financial management of CRI and its associated partnerships. Prior to joining
CRI in 1974, he was Vice President of Shelter Corporation of America and a
number of its subsidiaries dealing principally with real estate development and
equity financing. Before joining Shelter Corporation, he was a senior tax
accountant with Arthur Andersen & Co. He holds a Juris Doctor degree, a Master
of Business Administration degree and a Bachelor of Science degree in Business
Administration from the University of South Dakota. He is also a Director and
executive officer of CRIIMI MAE Inc. and CRIIMI, Inc.
Ronald W. Thompson, 52, is Group Executive Vice President-Hotel Asset
Management. Prior to joining CRI in 1985, he was employed at the Hyatt
Organization where he most recently served as the General Manager of the Hyatt
Regency in Flint, Michigan. During his nine year tenure with Hyatt, he held
senior management positions with the Hyatt Regency in Dearborn, Michigan, the
Hyatt in Richmond, Virginia, the Hyatt in Winston-Salem, North Carolina and the
Hyatt Regency in Atlanta, Georgia. Before joining Hyatt, Mr. Thompson worked in
London, England for the English Tourist Board as well as holding management
positions in Europe, Australia, and New Zealand in the hotel industry. Mr.
Thompson received his education in England where he received a business degree
in Hotel Administration from Winston College.
III-1
<PAGE>
PART III
--------
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - Continued
--------------------------------------------------
Susan R. Campbell, 40, is Executive Vice President and Chief Operating Officer.
Prior to joining CRI in March 1985, she was a budget analyst for the B. F. Saul
Advisory Company. She holds a Bachelor of Science degree in General Business
from the University of Maryland.
Melissa Cecil Lackey, 43, is Senior Vice President and General Counsel. Prior
to joining CRI in 1990, she was associated with the firms of Zuckerman, Spaeder,
Goldstein, Taylor & Kolker in Washington, D.C. and Hirsch & Westheimer in
Houston, Texas. She holds a Juris Doctor degree from the University of Virginia
School of Law and a Bachelor of Arts degree from the College of William & Mary.
(d) There is no family relationship between any of the foregoing directors
and executive officers.
(f) Involvement in certain legal proceedings.
None.
(g) Promoters and control persons.
Not applicable.
ITEM 10. EXECUTIVE COMPENSATION
----------------------
(a), (b), (c), (d), (e), (f), (g), (i), (j), (k) and (l)
The Partnership has no officers or directors. However, in accordance
with the Partnership Agreement, and as disclosed in the public
offering, various kinds of compensation and fees were paid or are
payable to the General Partners and their affiliates. Additional
information required in these sections is incorporated herein by
reference to Notes 3 and 4 of the notes to the financial statements
contained in Part III.
(h) Termination of employment and changes in control arrangements.
None.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
---------------------------------------------------
MANAGEMENT
----------
(a) Security ownership of certain beneficial owners.
No person or "group," as that term is used in Section 13(d)(3) of the
Securities Exchange Act of 1934, is known by the Partnership to be the
beneficial owner of more than 5% of the issued and outstanding
partnership units at December 31, 1998.
(b) Security ownership of management.
The following table sets forth certain information concerning all
units beneficially owned, as of December 31, 1998, by each director
III-2
<PAGE>
PART III
--------
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
---------------------------------------------------
MANAGEMENT - Continued
----------
and by all directors and officers as a group of the Managing General
Partner of the Partnership.
Name of Amount and Nature % of total
Beneficial Owner of Beneficial Ownership Units issued
---------------- ----------------------- ------------
William B. Dockser None 0%
H. William Willoughby None 0%
All Directors and Officers
as a Group (5 persons) None 0%
(c) Changes in control.
There exists no arrangement known to the Partnership, the operation of
which may, at a subsequent date, result in a change in control of the
Partnership. There is a provision in the Limited Partnership
Agreement which allows, under certain circumstances, the ability to
change control.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
(a) Transactions with management and others.
The Partnership has no directors or officers. In addition, the
Partnership has had no transactions with individual officers or
directors of the Managing General Partner of the Partnership other
than any indirect interest such officers and directors may have in the
amounts paid to the Managing General Partner or its affiliates by
virtue of their stock ownership in CRI. Item 10 of this report, which
contains a discussion of the fees and other compensation paid or
accrued by the Partnership to the General Partners or their
affiliates, is incorporated herein by reference. Note 3 of the notes
to financial statements, which contains disclosure of related party
transactions, is also incorporated herein by reference.
(b) Certain business relationships.
The Partnership's response to Item 12(a) is incorporated herein by
reference. In addition, the Partnership has no business relationship
with entities of which the officers and directors of the Managing
General Partner of the Partnership are officers, directors or equity
owners other than as set forth in the Partnership's response to Item
12(a).
(c) Indebtedness of management.
None.
(d) Transactions with promoters.
Not applicable.
III-3
<PAGE>
PART III
--------
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
Financial Statements Page
-------------------- ----
Report of Independent Certified Public
Accountants - Capital Realty Investors, Ltd. III-7
Reports of Independent Certified Public
Accountants - Local Partnerships in which
Capital Realty Investors, Ltd. has invested III-8
Balance Sheets as of December 31, 1998 and 1997 III-9
Statements of Operations for the years
ended December 31, 1998 and 1997 III-10
Statements of Changes in Partners'
Deficit for the years ended December 31,
1998 and 1997 III-11
Statements of Cash Flows for the years ended
December 31, 1998 and 1997 III-12
Notes to Financial Statements III-13
III-4
<PAGE>
PART III
--------
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K - Continued
--------------------------------
(a) Index of Exhibits (Listed according to the number assigned in
----------------- the table in Item 601 of Regulation S-B.)
Exhibit No. 4 - Instruments defining the rights of security holders,
including indentures.
a. Amended Certificate and Limited Partnership Agreement of Capital
Realty Investors, Ltd. (Incorporated by reference from Exhibit 4
to Registrant's Registration Statement on Form S-11, as amended,
dated December 4, 1981.)
Exhibit No. 10 - Material Contracts.
a. Management Services Agreement between CRI and Capital Realty
Investors, Ltd. (Incorporated by reference from Exhibit No.
10(b) to Registrant's Registration Statement on Form S-11, as
amended, dated December 4, 1981.)
Exhibit No. 27 - Financial Data Schedule.
a. Filed herewith electronically.
Exhibit No. 99 - Additional Exhibits.
a. Prospectus of the Partnership, dated December 31, 1981.
(Incorporated by reference to Registrant's Registration Statement
on Form S-11, as amended, dated December 4, 1981.)
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended December
31, 1998.
III-5
<PAGE>
SIGNATURES
----------
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CAPITAL REALTY INVESTORS, LTD.
--------------------------------------------
(Registrant)
by: C.R.I., Inc.
----------------------------------------
Managing General Partner
March 25, 1999 by: /s/ William B. Dockser
- ----------------- ------------------------------------
DATE William B. Dockser, Director
Chairman of the Board,
and Treasurer
(Principal Executive Officer)
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 and on
the dates indicated.
March 25, 1999 by: /s/ H. William Willoughby
- ----------------- ------------------------------------
DATE H. William Willoughby,
Director, President
and Secretary
March 25, 1999 by: /s/ Michael J. Tuszka
- ----------------- ------------------------------------
DATE Michael J. Tuszka
Vice President
and Chief Accounting Officer
(Principal Financial Officer
and Principal Accounting Officer)
III-6
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
-------------------------------
PUBLIC ACCOUNTANTS
------------------
To the Partners
Capital Realty Investors, Ltd.
We have audited the balance sheets of Capital Realty Investors, Ltd. (a
District of Columbia limited partnership) as of December 31, 1998 and 1997, and
the related statements of operations, changes in partners' deficit and cash
flows for the years ended December 31, 1998 and 1997. 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 did not audit the financial statements of any Local
Partnerships. The Partnership's share of income from these Local Partnerships
constitutes $542,557 and $497,570 of income in 1998 and 1997, respectively,
included in the Partnership's net income. The financial statements of these
Local Partnerships were audited by other auditors whose reports thereon have
been furnished to us, and our opinion expressed herein, insofar as it relates to
the amounts included for these Local Partnerships, is based solely upon the
reports of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based upon our audits and the reports of other auditors,
the financial statements referred to above present fairly, in all material
respects, the financial position of Capital Realty Investors, Ltd. as of
December 31, 1998 and 1997 and the results of its operations, changes in
partners' deficit and cash flows for the years ended December 31, 1998 and 1997,
in conformity with generally accepted accounting principles.
Vienna, VA Grant Thornton LLP
March 9, 1999
III-7
<PAGE>
REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS -
LOCAL PARTNERSHIPS IN WHICH
CAPITAL REALTY INVESTORS, LTD.
HAS INVESTED*
* The reports of independent certified public accountants - Local
Partnerships in which Capital Realty Investors, Ltd. has invested were
filed in paper format under Form SE on March 25, 1999, in accordance with
the Securities and Exchange Commission's continuing hardship exemption
granted March 5, 1999.
III-8
<PAGE>
CAPITAL REALTY INVESTORS, LTD.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Investments in and advances to partnerships $ 2,506,524 $ 2,166,362
Cash and cash equivalents 2,318,302 2,204,552
Restricted cash equivalents 140,000 --
Acquisition fees, principally paid to related parties, net of
accumulated amortization of $367,498 and $344,688, respectively 544,922 567,732
Property purchase costs, net of accumulated amortization of
$96,333 and $90,419, respectively 140,234 146,148
Other assets 1,669 6,520
------------ ------------
Total assets $ 5,651,651 $ 5,091,314
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Due on investments in partnerships $ 4,478,800 $ 4,478,800
Accrued interest payable 7,193,776 6,723,580
Accounts payable and accrued expenses 83,805 58,743
------------ ------------
Total liabilities 11,756,381 11,261,123
------------ ------------
Commitments and contingencies
Partners' capital (deficit):
Capital paid in:
General Partners 14,000 14,000
Limited Partners 24,837,000 24,837,000
------------ ------------
24,851,000 24,851,000
Less:
Accumulated distributions to partners (996,102) (996,102)
Offering costs (2,689,521) (2,689,521)
Accumulated losses (27,270,107) (27,335,186)
------------ ------------
Total partners' deficit (6,104,730) (6,169,809)
------------ ------------
Total liabilities and partners' deficit $ 5,651,651 $ 5,091,314
============ ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
III-9
<PAGE>
CAPITAL REALTY INVESTORS, LTD.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the years ended
December 31,
-----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Share of income from partnerships $ 723,509 $ 676,176
----------- -----------
Other revenue and expenses:
Revenue:
Interest and other income 126,716 112,679
----------- -----------
Expenses:
Interest 470,196 470,189
Management fee 95,208 95,208
General and administrative 122,754 91,305
Professional fees 68,264 63,025
Amortization 28,724 28,724
----------- -----------
785,146 748,451
----------- -----------
Total other revenue and expenses (658,430) (635,772)
----------- -----------
Net income $ 65,079 $ 40,404
=========== ===========
Net income allocated to General Partners (3%) $ 1,952 $ 1,212
=========== ===========
Net income allocated to Limited Partners (97%) $ 63,127 $ 39,192
=========== ===========
Net income per unit of Limited Partnership Interest
based on 24,797 and 24,837 units outstanding $ 2.55 $ 1.58
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
III-10
<PAGE>
CAPITAL REALTY INVESTORS, LTD.
STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
--------- ----------- -----------
<S> <C> <C> <C>
Partners' deficit, January 1, 1997 $(822,630) $(5,387,583) $(6,210,213)
Net income 1,212 39,192 40,404
--------- ----------- -----------
Partners' deficit, December 31, 1997 (821,418) (5,348,391) (6,169,809)
Net income 1,952 63,127 65,079
--------- ----------- -----------
Partners' deficit, December 31, 1998 $(819,466) $(5,285,264) $(6,104,730)
========= =========== ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
III-11
<PAGE>
CAPITAL REALTY INVESTORS, LTD.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended
December 31,
-----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 65,079 $ 40,404
Adjustments to reconcile net income to net cash
used in operating activities:
Share of income from partnerships (723,509) (676,176)
Amortization of deferred costs 28,724 28,724
Changes in assets and liabilities:
Increase in accrued interest receivable
on advances to partnerships (6,137) (6,137)
Decrease in other assets 4,851 34,072
Increase in accrued interest payable 470,196 470,196
Increase in accounts payable and accrued expenses 25,062 6,513
----------- -----------
Net cash used in operating activities (135,734) (102,404)
----------- -----------
Cash flows from investing activities:
Receipt of distributions from partnerships 495,696 492,235
Advances to partnerships (106,212) --
Maturity of unrestricted certificate of deposit -- 189,000
Investment held in escrow (140,000) --
----------- -----------
Net cash provided by investing activities 249,484 681,235
----------- -----------
Cash flows from financing activities:
Pay-off of purchase money notes and related interest -- (617,574)
----------- -----------
Net cash used in financing activities -- (617,574)
----------- -----------
Net increase (decrease) in cash and cash equivalents 113,750 (38,743)
Cash and cash equivalents, beginning of year 2,204,552 2,243,295
----------- -----------
Cash and cash equivalents, end of year $ 2,318,302 $ 2,204,552
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ -- $ 117,574
=========== ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
III-12
<PAGE>
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
------------
Capital Realty Investors, Ltd. (the Partnership) was formed under the
District of Columbia Limited Partnership Act on June 1, 1981 and shall
continue until December 31, 2030 unless sooner dissolved in accordance with
the Partnership Agreement. The Partnership was formed to invest in real
estate by acquiring and holding a limited partner interest in limited
partnerships (Local Partnerships) which own and operate federal or state
government-
assisted or conventionally financed apartment properties located throughout
the United States, which provide housing principally to the elderly or to
individuals and families of low or moderate income.
The General Partners of the Partnership are C.R.I., Inc. (CRI), which
is the Managing General Partner, current and former shareholders of CRI and
Rockville Pike Associates, Ltd., a Maryland limited partnership which
includes the shareholders of CRI and certain former officers and employees
of CRI.
The Partnership sold 24,837 units at $1,000 per unit of Limited
Partner Interest through a public offering. The offering period was
terminated on December 31, 1982.
b. Method of accounting
--------------------
The financial statements of the Partnership are prepared on the
accrual basis of accounting in accordance with generally accepted
accounting principles.
c. Investments in and advances to partnerships
-------------------------------------------
The investments in and advances to Local Partnerships (see Note 2) are
accounted for by the equity method because the Partnership is a limited
partner in the Local Partnerships. Under this method, the carrying amount
of the investments in and advances to Local Partnerships is (i) reduced by
distributions received and (ii) increased or reduced by the Partnership's
share of earnings or losses, respectively, of the Local Partnerships. As
of December 31, 1998 and 1997, the Partnership's share of cumulative losses
of nine and 11, respectively, of the Local Partnerships exceeded the amount
of the Partnership's investment in and advances to those Local Partnerships
by $8,698,644 and $8,209,740, respectively. Since the Partnership has no
further obligation to advance funds or provide financing to these Local
Partnerships, the excess losses have not been reflected in the accompanying
financial statements. As of December 31, 1998 and 1997, cumulative cash
distributions of $2,626,331 and $2,445,379, respectively, have been
received from the Local Partnerships for which the Partnership's carrying
value is zero. These distributions are recorded as increases in the
Partnership's share of income from partnerships.
Costs incurred in connection with acquiring these investments have
been capitalized and are being amortized using the straight-line method
over the estimated useful lives of the properties owned by the Local
Partnerships.
III-13
<PAGE>
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
d. Cash and cash equivalents
-------------------------
Cash and cash equivalents consist of all money market funds, time and
demand deposits, repurchase agreements, commercial paper and certificates
of deposit with original maturities of three months or less.
e. Offering costs
--------------
The Partnership incurred certain costs in connection with the offering
and selling of limited partner interests. Such costs were recorded as a
reduction of partners' capital when incurred.
f. Income taxes
------------
For federal and state income tax purposes, each partner reports on his
or her personal income tax return his or her share of the Partnership's
income or loss as determined for tax purposes. Accordingly, no provision
(credit) has been made for income taxes in these financial statements.
g. Use of estimates
----------------
In preparing financial statements in conformity with generally
accepted accounting principles, the Partnership is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements, and of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
h. Fair Value of Financial Instruments
-----------------------------------
The financial statements include estimated fair value information as
of December 31, 1998, as required by Statement of Financial Accounting
Standards (SFAS) No. 107, "Disclosure About Fair Value of Financial
Instruments." Such information, which pertains to the Partnership's
financial instruments (primarily cash and cash equivalents and purchase
money notes), is based on the requirements set forth in SFAS No. 107 and
does not purport to represent the aggregate net fair value of the
Partnership.
The balance sheet carrying amounts for cash and cash equivalents
approximate estimated fair values of such assets.
The Partnership has determined that it is not practicable to estimate
the fair value of the purchase money notes, either individually or in the
aggregate, due to: (1) the lack of an active market for this type of
financial instrument, (2) the variable nature of purchase money note
interest payments as a result of fluctuating cash flow distributions
received from the related Local Partnerships, and (3) the excessive costs
associated with an independent appraisal of the purchase money notes.
III-14
<PAGE>
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS
a. Due on investments in partnerships
----------------------------------
As of both December 31, 1998 and 1997, the Partnership held limited
partner interests in 17 Local Partnerships which were organized to develop,
construct, own, maintain and operate rental apartment properties which
provide housing principally to the elderly and to individuals and families
of low or moderate income. The remaining principal amounts due on
investments in the Local Partnerships were as follows.
<TABLE>
<CAPTION>
December 31,
-------------------------
1998 1997
---------- ----------
<S> <C> <C>
Purchase money notes due in:
1997 $ 700,000 $ 700,000
1998 3,778,800 3,778,800
---------- ----------
Total $4,478,800 $4,478,800
========== ==========
</TABLE>
The purchase money notes have stated interest rates ranging from 7.25%
to 11.10%. The purchase money notes are payable upon the earliest of: (1)
sale or refinancing of the respective Local Partnership's rental property;
(2) payment in full of the respective Local Partnership's permanent loan;
or (3) maturity. Purchase money notes in an aggregate principal amount of
$500,000 matured on January 1, 1997 and were paid off. The amounts due on
the purchase money notes consist of outstanding principal and accrued
interest of approximately $4.479 million and $7.194 million, respectively,
as of December 31, 1998, and $4.479 million and $6.724 million,
respectively, as of December 31, 1997. The Managing General Partner is
hopeful that an extension of the purchase money notes' maturity dates can
be negotiated. It is possible, however, that the noteholders could refuse
to negotiate or, even if extensions are obtained, that the underlying
properties' values will be insufficient to pay off the purchase money notes
at the time of sale or refinancing.
The Partnership's inability to pay these purchase money note principal
and accrued interest balances when due, and the resulting uncertainty
regarding the Partnership's continued ownership interest in the related
Local Partnerships, does not impact the Partnership's financial condition
because the purchase money notes are nonrecourse and secured solely by the
Partnership's interest in the related Local Partnerships. Therefore,
should the investment in Frenchman's
Wharf I and/or Shallowford Oaks not produce sufficient value to satisfy the
related purchase money notes, the Partnership's exposure to loss is limited
because the amount of the nonrecourse indebtedness of each of the maturing
purchase money notes exceeds the carrying amount of the investment in and
advances to the related Local Partnerships. Thus, even a complete loss of
one or both of these Local Partnerships would not have a material impact on
the financial condition of the Partnership. However, since these notes
remain unpaid, the noteholders have the right to foreclose on the
Partnership's interest in the related Local Partnerships. In the event of
III-15
<PAGE>
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
a foreclosure, the excess of the nonrecourse indebtedness over the carrying
amount of the Partnership's investment in the related Local Partnership
would result in cancellation of indebtedness income which would be taxable
to Limited Partners at a federal tax rate of up to 39.6%. Additionally, in
the event of a foreclosure, the Partnership would lose its investment in
the Local Partnership and, likewise, its share of future cash flow
distributed by the Local Partnership from rental operations, sales or
refinancings. The Partnership did not receive any distributions from
Frenchman's Wharf I or Shallowford Oaks during 1998 and 1997, and its
aggregate share of loss for these two Local Partnerships was $112,349 and
$6,136 for the years ended December 31, 1998 and 1997, respectively. See
further discussion of these purchase money notes, below.
Interest expense on the Partnership's purchase money notes for the
years ended December 31, 1998 and 1997 was $470,196 and $470,189,
respectively. The accrued interest on the purchase money notes of
$7,193,776 and $6,723,580, as of December 31, 1998 and 1997, respectively,
is due on the respective maturity dates of the purchase money notes or
earlier, in some instances, if the pertinent Local Partnerships has
distributable net cash flow, as defined in the relevant Local Partnership
agreement.
Frenchman's Wharf
-------------------
The Partnership defaulted on its purchase money notes related to
Frenchman's Wharf I on June 1, 1998 when the notes matured and were not
paid. The default amount included principal and accrued interest of
$3,778,800 and $6,086,253, respectively. As of March 25, 1999, principal
and accrued interest of 3,778,800 and $6,426,407, respectively, were due.
The purchase money notes were initially due to mature on June 1, 1988, but
were extended to mature on June 1, 1998. The Partnership has requested
another extension of the maturity date of the purchase money notes until
May 2000, coterminous with the expiration of the related Local
Partnership's provisional workout agreement related to its mortgage loan.
As of March 25, 1999, the noteholders had not consented to an extension
agreement. There is no assurance that any agreement will be reached with
the noteholders. As such, there is no assurance that the Partnership will
be able to retain its interest in Frenchman's Wharf I. The uncertainty
regarding the continued ownership of the Partnership's interest in
Frenchman's Wharf I does not impact the Partnership's financial condition,
as discussed above.
Shallowford Oaks
----------------
The Partnership defaulted on its purchase money note relating to
Shallowford Oaks on January 1, 1997 when the note matured and was not paid.
The default amount included principal and accrued interest of $700,000 and
$761,389, respectively. As of March 25, 1999, principal and accrued
interest totaling $700,000 and $874,290, respectively, were due. The
Managing General Partner has proposed to extend the note until November
2001, coterminous with the maturity of the Local Partnership's provisional
workout agreement on its mortgage loan, and as of March 25, 1999, the
Managing General Partner is awaiting a response from the noteholder. There
is no assurance that any agreement will be reached with the noteholder.
III-16
<PAGE>
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
In addition, Shallowford Oaks' mortgage lender filed notice on
November 3, 1997 accelerating the Local Partnership's mortgage loan and
demanding payment in full due to a purported nonmonetary default of the
provisional workout agreement. Subsequently, the local managing general
partner filed an action to enjoin the attempted foreclosure and hired an
independent accounting firm to perform a compliance audit. The results of
the compliance audit were presented at hearings on April 20, 1998 and May
6, 1998. In June 1998, the Partnership posted a bond of $140,000 to extend
the stay of foreclosure. In August 1998, the court entered the requested
interlocutory injunction pending the results of hearings on equitable
issues, which were held in September 1998. The court entered an order for
equitable relief in Shallowford's favor on November 12, 1998. The lender
filed a motion for a new trial and a motion to alter or amend judgment in
December 1998. A hearing on the lender's motions was held on February 11,
1999. As of March 25, 1999, the court had not issued a ruling. During
1998, the Partnership funded 50% of the legal costs and fees to defend the
foreclosure action with the balance funded by the local managing general
partner. The Partnership expects to fund 50% of the continuing legal costs
in 1999.
Due to the uncertainties regarding the outcome of an extension of the
purchase money note and/or the foreclosure proceedings on the Local
Partnership's mortgage loan, there is no assurance that the Partnership
will be able to retain its interest in Shallowford Oaks. The uncertainty
regarding the continued ownership of the Partnership's interest in
Shallowford Oaks does not impact the Partnership's financial condition, as
discussed above.
b. Interests in profits, losses and cash distributions
---------------------------------------------------
made by Local Partnerships
--------------------------
The Partnership has a 74.99% to 98.99% interest in profits, losses and
cash distributions (as restricted by various federal and state housing
agencies) of each Local Partnership. An affiliate of the General Partners
of the Partnership is also a general partner of each Local Partnership.
The Partnership received cash distributions from the rental operations of
the Local Partnerships totaling $495,696 and $492,235 during the years
ended December 31, 1998 and 1997, respectively. As of both December 31,
1998 and 1997, 12 of the Local Partnerships had surplus cash, as defined by
their respective regulatory agencies, in the amount of $2,898,316 and
$2,539,150, respectively, which may be available for distribution in
accordance with their respective regulatory agencies' regulations.
The cash distributions to the Partnership from the operations of the
rental properties may be limited by HUD regulations. Such regulations
limit annual cash distributions to a percentage of the owner's equity
investment in a rental property. Funds in excess of those which may be
distributed to owners are generally required to be placed in a residual
receipts account held by the governing state or federal agency for the
benefit of the property.
Upon sale or refinancing of a property owned by a Local Partnership,
or upon the liquidation of a Local Partnership, the proceeds from such
sale, refinancing or liquidation shall be distributed in accordance with
the respective provisions of each Local Partnership's partnership
III-17
<PAGE>
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
agreement. In accordance with such provisions, the Partnership would
receive from such proceeds its respective percentage interest of any
remaining proceeds, after payment of (1) all debts and liabilities of the
Local Partnership and certain other items, (2) the Partnership's capital
contributions plus certain specified amounts as outlined in each
partnership agreement, and (3) certain special distributions to general
partners and related entities of the Local Partnership.
c. Advances to Local Partnerships
------------------------------
The advances, and accrued interest thereon, made to the Local
Partnerships were as follows.
<TABLE>
<CAPTION>
December 31,
--------------------------
1998 1997
----------- -----------
<S> <C> <C>
Local Partnership
-----------------
Frenchman's Wharf I:
Principal amount of funds advanced $ 305,398 $ 305,398
Accrued interest on advances 183,102 183,102
Shallowford Oaks:
Principal amount of funds advanced 178,407 72,195
Accrued interest on advances 25,194 19,057
----------- -----------
Total $ 692,101 $ 579,752
=========== ===========
</TABLE>
Frenchman's Wharf I
-------------------
To cover operating deficits incurred in prior years for Frenchman's
Wharf I, the Partnership advanced funds totaling $305,398 as of both
December 31, 1998 and 1997. No advances have been made to Frenchman's
Wharf I since March 1987, and the Partnership does not expect to advance
any additional funds to the Local Partnership. These loans, together with
accrued interest of $183,102 as of both December 31, 1998 and 1997, are
payable from cash flow of Frenchman's Wharf I after payment of first
mortgage debt service and after satisfaction by the Partnership of certain
other interest obligations on the purchase money notes relating to the
Local Partnership. No interest has been accrued since 1992 due to the
uncertainty of future collection. There is no assurance that the Local
Partnership, upon expiration of the workout, will be able to repay the
loans in accordance with the terms thereof. For financial reporting
purposes, these loans have been reduced to zero by the Partnership as a
result of losses from the Local Partnership during prior years.
III-18
<PAGE>
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
Shallowford Oaks
----------------
On November 23, 1994, the Partnership advanced $72,195 to Shallowford
Oaks to help repay the Local Partnership's outstanding obligations related
to its mortgage loan. This loan, along with accrued interest of $25,194
and $19,057 as of December 31, 1998 and 1997, respectively, is payable from
cash flow of Shallowford Oaks after payment of first mortgage debt service
and after satisfaction by the Partnership of certain other interest
obligations on the related purchase money note. The Partnership advanced
additional amounts totaling $106,212 to Shallowford Oaks to help fund
legal expenses relating to the Shallowford litigation. Due to the
foreclosure litigation and non-payment when due to the purchase money note,
as discussed above, it is probable that the Partnership will not receive
any repayment of its loans. For financial reporting purposes, these loans
have been reduced to zero by the Partnership as a result of losses from the
Local Partnership during prior years.
d. Property matters
----------------
Court Place and Park Glen
-------------------------
The interest rates on mortgage loans financed by IHDA on properties
related to Court Place Associates (Court Place) and Park Glen Associates
(Park Glen) were lowered by IHDA and, as a result, there is likely to be a
reduction in Section 8 rents funded by HUD, retroactive to July 1, 1997.
It is estimated that the potential retroactive adjustments will be
approximately $33,000 and $20,000, for Court Place and Park Glen,
respectively.
Frenchman's Wharf
-----------------
The lender associated with Frenchman's Wharf I's mortgage loan had
requested in October 1998 an operational audit. The local managing general
partner and the Managing General Partner are of the opinion that the lender
does not have the legal right to perform such an audit under the terms of
the Local Partnership's loan documents. The local managing general partner
promptly responded as such to the lender and no further correspondence
regarding this matter has been received as of March 25, 1999.
The reports of the auditors on the financial statements of Frenchman's
Wharf I for the years ended December 31, 1998 and 1997 indicated that
substantial doubt exists about the ability of the Local Partnership to
continue as a going concern due to the Local Partnership's default on its
mortgage and the expiration of its Section 8 HAP contract with HUD on
November 30, 1999. The uncertainty about the Local Partnership's continued
ownership of the property does not impact the Partnership's financial
condition, as discussed above.
e. Affordable housing legislation
------------------------------
Frenchman's Wharf I has a Section 8 HAP contract covering 10% of the
property's apartment units which expires during 1999. The Section 8 HAP
III-19
<PAGE>
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
contract provides rental subsidies to the property owner for units occupied
by low income tenants. If the contract is not extended, there will likely
be an increase in vacancy during the 6-12 months after it expires. As
residents in the low-income units move out, the units will be made
available to market-rate residents, as market conditions allow.
Eight Local Partnerships in which the Partnership is invested have
mortgage loans financed by various state housing agencies, and two Local
Partnerships have mortgage loans financed by the Rural Economic Community
Development (RECD) agency. These Local Partnerships have Section 8 HAP
contracts in place for approximately 100% of their apartment units. These
Section 8 HAP contracts begin to expire in September of 2000. It remains
to be seen how the financing agencies will deal with the expiration of the
Section 8 HAP contracts. The Managing General Partner is of the opinion
that the agencies will strive to preserve the units as low income, or
affordable, housing. At this time, it appears unlikely that the agencies
will allow a prepayment of the respective mortgage loans or a conversion of
the units to market rate housing.
f. Summarized financial information
--------------------------------
Summarized financial information for the Local Partnerships at
December 31, 1998 and 1997 and for the years ended December 31, 1998 and
1997 follows.
III-20
<PAGE>
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Rental property, at cost, net of accumulated depreciation
of $51,933,415 and $48,654,880, respectively $ 42,892,787 $ 45,238,626
Land 8,029,484 8,029,484
Other assets 16,028,469 14,976,556
------------ ------------
Total assets $ 66,950,740 $ 68,244,666
============ ============
Mortgage notes payable $ 70,166,935 $ 71,295,260
Other liabilities 8,192,897 8,023,703
------------ ------------
Total liabilities 78,359,832 79,318,963
Partners' deficit (11,409,092) (11,074,297)
------------ ------------
Total liabilities and partners' deficit $ 66,950,740 $ 68,244,666
============ ============
</TABLE>
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the years ended
December 31,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Revenue:
Rental $ 18,496,980 $ 18,256,810
Interest 605,272 570,552
Other 378,041 418,670
------------ ------------
Total revenue 19,480,293 19,246,032
------------ ------------
Expenses:
Operating 9,677,356 9,474,319
Interest 6,401,747 6,572,693
Depreciation 3,309,526 3,282,995
Amortization 39,720 39,721
------------ ------------
Total expenses 19,428,349 19,369,728
------------ ------------
Net income (loss) $ 51,944 $ (123,696)
============ ============
</TABLE>
III-21
<PAGE>
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
g. Reconciliation of the Local Partnerships' financial statement
-------------------------------------------------------------
net loss to taxable income (loss)
---------------------------------
For federal income tax purposes, the Local Partnerships report on a
basis whereby: (1) certain revenue and the related assets are recorded
when received rather than when earned; (2) certain costs are expensed when
paid or incurred rather than capitalized and amortized over the period of
benefit; and (3) a shorter life is used to compute depreciation on the
property as permitted by Internal Revenue Service (IRS) Regulations. These
returns are subject to examination and, therefore, possible adjustment by
the IRS.
A reconciliation of the Local Partnerships' financial statement
net income (loss) reflected above to taxable income follows.
III-22
<PAGE>
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
<TABLE>
<CAPTION>
For the years ended
December 31,
-----------------------------
1998 1997
------------ ------------
<S> <C> <C>
Financial statement net income (loss) $ 51,944 $ (123,696)
Adjustments:
Differences arising from the use of accelerated methods,
net of depreciation on construction period expenses
capitalized for financial statement purposes 2,039,802 281,811
Amortization for financial statement purposes not
deducted for income tax purposes 40,974 46,892
Miscellaneous, net 268,095 129,048
------------ ------------
Taxable income $ 2,400,815 $ 334,055
============ ============
</TABLE>
3. RELATED-PARTY TRANSACTIONS
In accordance with the Partnership Agreement, the Partnership paid the
Managing General Partner a fee for services in connection with the review,
selection, evaluation, negotiation and acquisition of the interests in the Local
Partnerships. The fee amounted to $993,480, which is equal to 4% of the Limited
Partners' capital contributions to the Partnership. The acquisition fee was
capitalized and is being amortized over a 40-year period using the straight-line
method.
In accordance with the terms of the Partnership Agreement, the Partnership
is obligated to reimburse the Managing General Partner for its direct expenses
in managing the Partnership. For the years ended December 31, 1998 and 1997,
the Partnership paid $96,498 and $62,933, respectively, as direct reimbursement
of expenses incurred on behalf of the Partnership. Such expenses are included
in the accompanying statements of operations as general and administrative
expenses.
In addition, in accordance with the terms of the Partnership Agreement, the
Partnership is obligated to pay the Managing General Partner an annual incentive
management fee (the Management Fee), after all other expenses of the Partnership
are paid. The amount of the Management Fee shall be equal to .25% of invested
assets, as defined in the Partnership Agreement, and shall be payable from the
Partnership's cash available for distribution, as defined in the Partnership
Agreement, as of the end of each calendar year, as follows:
a. First, on a monthly basis as an operating expense before any
distributions to limited partners in an annual amount equal to
$95,208; and
III-23
<PAGE>
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
3. RELATED-PARTY TRANSACTIONS - Continued
b. Second, after distributions to the limited partners in the amount of
1% of the gross proceeds of the offering, the balance of such .25% of
invested assets.
For each of the years ended December 31, 1998 and 1997, the Partnership
paid the Managing General Partner a Management Fee of $95,208.
The Managing General Partner and/or its affiliates may receive a fee of not
more than 2% of the sales price of an investment in a Local Partnership or the
property it owns, payable under certain conditions upon the sale of an
investment in a Local Partnership or the property it owns. The payment of the
fee is subject to certain restrictions, including the achievement of a certain
level of sales proceeds and making certain minimum distributions to limited
partners. No such amounts were paid to the Managing General Partner and/or its
affiliates during 1998 or 1997.
4. PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS
All profits and losses are allocated 97% to the limited partners and 3% to
the General Partners. The net proceeds resulting from the liquidation of the
Partnership or the Partnership's share of the net proceeds from any sale or
refinancing of the Local Partnerships or their rental properties which are not
reinvested shall be distributed and applied as follows:
(i) to the payment of debts and liabilities of the Partnership
(including all expenses of the Partnership incident to the sale
or refinancing) other than loans or other debts and liabilities
of the Partnership to any partner or any affiliate; such debts
and liabilities, in the case of a non-liquidating distribution,
to be only those which are then required to be paid or, in the
judgment of the Managing General Partner, required to be provided
for;
(ii) to the establishment of any reserves which the Managing General
Partner deems reasonably necessary for contingent, unmatured or
unforeseen liabilities or obligations of the Partnership;
(iii) to the limited partners in the amount of their capital
contributions without deduction for prior cash distributions
other than prior distributions of proceeds from any sale or
refinancing;
(iv) to the repayment of any unrepaid loans theretofore made by any
partner or any affiliate to the Partnership for Partnership
obligations and to the payment of any unpaid amounts owing to the
General Partners pursuant to the Partnership Agreement;
(v) to the General Partners in the amount of their capital
contributions;
(vi) thereafter, for their services to the Partnership, in equal
shares to certain general partners (or their designees), whether
or not any is then a general partner, an aggregate fee of 1% of
the gross proceeds resulting from (A) such sale (if the proceeds
are from a sale rather than a refinancing) and (B) any prior
sales from which such 1% fee was not paid to the General Partners
or their designees and,
(vii) the remainder, 15% to the General Partner (or their assignees)
and 85% to the limited partners (or their assignees).
III-24
<PAGE>
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
4. PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS - Continued
Fees payable to certain general partners (or their designees) under (vi)
above, together with all other property disposition fees and any other
commissions or fees payable upon the sale of apartment properties, shall not in
the aggregate exceed the lesser of the competitive rate or 6% of the sales price
of the apartment properties.
The Managing General Partner and/or its affiliates may receive a fee in an
amount of not more than 2% of the sales price of the investment in a Local
Partnership or the property it owns. The fee would only be payable upon the
sale of the investment in a Local Partnership or the property it owns and would
be subject to certain restrictions, including achievement of a certain level of
sales proceeds and making certain minimum distributions to limited partners. No
such amounts were paid to the Managing General Partner and/or its affiliates
during 1998 or 1997.
Pursuant to the Partnership Agreement, all cash available for distribution,
as defined, shall be distributed, not less frequently than annually, 97% to the
limited partners and 3% to the General Partners after payment of the Management
Fee (see Note 3), as specified in the Partnership Agreement. As defined in the
Partnership Agreement, prior to the establishment of any reserves deemed
necessary by the Managing General Partner and after payment of the Management
Fee, the Partnership had cash available for distribution of $325,197 and $0 for
the years ended December 31, 1998 and 1997, respectively.
No distributions were declared or paid by the Partnership during 1998 or
1997. The Managing General Partner intends to retain all of the Partnership's
undistributed cash for the possible repayment, prepayment or purchase of the
Partnership's outstanding purchase money notes related to Local Partnerships.
5. RECONCILIATION OF THE PARTNERSHIP'S FINANCIAL STATEMENT NET
INCOME TO TAXABLE INCOME (LOSS)
For federal income tax purposes, the Partnership reports on a basis
whereby: (1) certain expenses are amortized rather than expensed when incurred;
(2) certain costs are amortized over a shorter period for tax purposes, as
permitted by IRS Regulations, and (3) certain costs are amortized over a longer
period for tax purposes. The Partnership records its share of losses from its
investments in limited partnerships for federal income tax purposes as reported
on the Local Partnerships' federal income tax returns (see Note 2.f.), including
losses in excess of related investment amounts. These returns are subject to
audit and, therefore, possible adjustment by the IRS.
III-25
<PAGE>
CAPITAL REALTY INVESTORS, LTD.
NOTES TO FINANCIAL STATEMENTS
5. RECONCILIATION OF THE PARTNERSHIP'S FINANCIAL STATEMENT NET
INCOME TO TAXABLE (LOSS) INCOME - Continued
A reconciliation of the Partnership's financial statement net income
to taxable income (loss) follows.
<TABLE>
<CAPTION>
For the years ended
December 31,
------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Financial statement net income $ 65,079 $ 40,404
Adjustments:
Differences between the income tax losses and
financial statement losses related to the
Partnership's equity in the Local Partnerships'
losses 1,653,347 (124,473)
Costs amortized over a shorter period for
income tax purposes 18,468 (47,278)
------------ ------------
Taxable income (loss) $ 1,736,894 $ (131,347)
============ ============
</TABLE>
III-26
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Method of Filing
- ------- -----------------------------
27 Financial Data Schedule Filed herewith electronically
III-27
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE ANNUAL REPORT ON FORM 10-KSB AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH 10-KSB.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 2,458,302
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,651,651
<CURRENT-LIABILITIES> 0
<BONDS> 11,672,576
0
0
<COMMON> 0
<OTHER-SE> (6,104,730)
<TOTAL-LIABILITY-AND-EQUITY> 5,651,651
<SALES> 0
<TOTAL-REVENUES> 850,225
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 314,950
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 470,196
<INCOME-PRETAX> 65,079
<INCOME-TAX> 0
<INCOME-CONTINUING> 65,079
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 65,079
<EPS-PRIMARY> 2.55
<EPS-DILUTED> 2.55
</TABLE>
