REAL ESTATE ASSOCIATES LTD IV
10-Q, 1996-08-16
REAL ESTATE
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<PAGE>   1





                       SECURITIES AND EXCHANGE COMMISSION

                            Washington, D.C.  20549


                                   FORM 10-Q


Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934

                        FOR QUARTER ENDED JUNE 30, 1996

                         COMMISSION FILE NUMBER 2-74063

                       REAL ESTATE ASSOCIATES LIMITED IV

                        A CALIFORNIA LIMITED PARTNERSHIP

                 I.R.S. EMPLOYER IDENTIFICATION NO. 95-3718731

                         9090 Wilshire Blvd., Suite 201
                          Beverly Hills, Calif.  90211

                         Registrant's Telephone Number,
                       Including Area Code (310) 278-2191

                       Securities Registered Pursuant to
                       Section 12(b) or 12(g) of the Act

                                      NONE

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed with the Commission by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding twelve 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
                                  ---       ---
<PAGE>   2
                       REAL ESTATE ASSOCIATES LIMITED IV
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                               INDEX TO FORM 10-Q

                      FOR THE QUARTER ENDED JUNE 30, 1995



PART I.  FINANCIAL INFORMATION

<TABLE>
<CAPTION>
      Item 1.  Financial Statements
<S>                                                                         <C>
               Balance Sheets, June 30, 1996 and December 31, 1995  . . . .  1

               Statements of Operations,
                   Six and Three Months Ended June 30, 1996 and 1995  . . .  2

               Statement of Partners' Equity (Deficiency),
                   Six Months Ended June 30, 1996   . . . . . . . . . . . .  3

               Statements of Cash Flows,
                   Six Months Ended June 30, 1996 and 1995  . . . . . . . .  4

               Notes to Financial Statements    . . . . . . . . . . . . . .  5

     Item 2.  Management's Discussion and Analysis of Financial
                   Condition and Results of Operations  . . . . . . . . . .  9

PART II.  OTHER INFORMATION

     Item 1.  Legal Proceedings   . . . . . . . . . . . . . . . . . . . . . 10

     Item 6.  Exhibits and Reports on Form 8- K   . . . . . . . . . . . . . 10

     Signatures   . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
<PAGE>   3
                       REAL ESTATE ASSOCIATES LIMITED IV
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                                 BALANCE SHEETS

                      JUNE 30, 1996 AND DECEMBER 31, 1995

                                     ASSETS

<TABLE>
<CAPTION>
                                                       1996             1995
                                                 (Unaudited)        (Audited) 
                                                 ------------     ------------
<S>                                             <C>             <C>
INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2)    $  3,423,100     $  3,221,339

CASH AND CASH EQUIVALENTS (Note 1)                 6,218,461        5,561,045

SHORT TERM INVESTMENTS (Note 1)                      125,000          125,000

OTHER  ASSETS                                         50,000           90,000 
                                                 ------------     ------------

          TOTAL ASSETS                          $  9,816,561     $  8,997,384 
                                                 ===========      ============


                LIABILITIES AND PARTNERS' EQUITY (DEFICIENCY)

LIABILITIES:
     Notes payable (Notes 1 and 5)              $  1,230,743    $   1,230,743
     Interest payable (Notes 1 and 5)                336,964          407,511
     Accounts payable                                  8,897           29,327 
                                                 ------------     ------------

                                                   1,576,604        1,667,581 
                                                 ------------     ------------

COMMITMENTS AND CONTINGENCIES (Notes 3 and 4)

PARTNERS' EQUITY (DEFICIENCY):
     General partners                               (189,630)        (198,732)
     Limited partners                              8,429,587        7,528,535 
                                                 ------------     ------------

                                                   8,239,957        7,329,803 
                                                 ------------     ------------
           TOTAL LIABILITIES AND PARTNERS'
                EQUITY                          $  9,816,561     $  8,997,384 
                                                 ============     ============
</TABLE>




  The accompanying notes are an integral part of these financial statements.
<PAGE>   4
                       REAL ESTATE ASSOCIATES LIMITED IV
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                            STATEMENTS OF OPERATIONS

               SIX AND THREE MONTHS ENDED JUNE 30, 1996 AND 1995

                                  (Unaudited)


<TABLE>
<CAPTION>
                                           Six months     Three months     Six months   Three months
                                            ended            ended           ended        ended
                                        June 30, 1996     June 30, 1996  June 30, 1995  June 30, 1995
                                      ---------------     ------------   ------------   -------------
<S>                                     <C>             <C>           <C>            <C>
INTEREST INCOME                         $     78,868     $     42,101   $     72,542   $     44,371 
                                         ------------     ------------   ------------   ------------

OPERATING EXPENSES:
    Legal and accounting                      70,484           16,640         57,113         18,074
    Management fees - general partner        252,696          126,348        252,696        126,348
    Interest (Note 1)                         61,500           30,750         61,500         30,750
    Administrative  (Note 3)                  36,689           17,258         41,136         21,216 
                                         ------------     ------------   ------------   ------------

TOTAL OPERATING EXPENSES                     421,369          190,996        412,445        196,388 
                                         ------------     ------------   ------------   ------------

LOSS FROM OPERATIONS                        (342,501)        (148,895)      (339,903)      (152,017)

DISTRIBUTIONS FROM LIMITED
      PARTNERSHIPS RECOGNIZED
      AS INCOME (Note 2)                   1,012,655          919,665      1,133,698        862,472

EQUITY IN INCOME OF LIMITED
      PARTNERSHIPS AND AMORTI-
       ZATION OF ACQUISITION COSTS           240,000          120,000        264,000        132,000 
                                         ------------     ------------   ------------   ------------

NET INCOME                              $    910,154    $     890,770  $   1,057,795  $     842,455 
                                         ============     ============   ============   ============


NET INCOME PER LIMITED
     PARTNERSHIP INTEREST (Note 1)      $         69    $          67  $          80  $          64 
                                         ============     ============   ============   ============
</TABLE>


  The accompanying notes are an integral part of these financial statements.




                                       2
<PAGE>   5
                       REAL ESTATE ASSOCIATES LIMITED IV
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                  STATEMENTS OF PARTNERS' EQUITY (DEFICIENCY)
                         SIX MONTHS ENDED JUNE 30, 1996

                                  (Unaudited)


<TABLE>
<CAPTION>
                                       General         Limited
                                       Partners        Partners            Total
                                     ------------    ------------    ------------
<S>                                 <C>             <C>             <C>
PARTNERSHIP INTERESTS,
   June 30, 1996                                          13,202 
                                                     ============


EQUITY (DEFICIENCY),
   January 1, 1996                  $   (198,732)   $  7,528,535    $  7,329,803

   Net income for the six months
   ended June 30, 1996                     9,102         901,052         910,154 
                                     ------------    ------------    ------------

EQUITY (DEFICIENCY),
   June 30, 1996                    $   (189,630)   $  8,429,587    $  8,239,957 
                                     ============    ============    ============
</TABLE>



   The accompanying notes are an integral part of these financial statements.





                                       3
<PAGE>   6
                       REAL ESTATE ASSOCIATES LIMITED IV
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                            STATEMENTS OF CASH FLOWS

                    SIX MONTHS ENDED JUNE 30, 1996 AND 1995

                                  (Unaudited)


<TABLE>
<CAPTION>
                                                                          1996               1995
                                                                      ------------      ------------
<S>                                                                 <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                       $     910,154     $   1,057,795
   Adjustments to reconcile net income to net cash provided by
      operating activities:
         Equity in income of limited partnerships and amorti-
            zation of additional basis and acquisition costs             (240,000)         (264,000)
         Decrease in advances to limited partnership                       40,000           (10,000)
         Increase in accounts payable and interest payable                (90,977)          (90,443)
                                                                      ------------      ------------

            Net cash provided by operating activities                     619,177           693,352
                                                                      ------------      ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Distributions from limited partnerships
        recognized as return of capital                                    38,239           333,198
                                                                      ------------      ------------


NET INCREASE IN CASH AND CASH EQUIVALENTS                                 657,416         1,026,550

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                          5,561,045         4,594,174
                                                                      ------------      ------------

CASH AND CASH EQUIVALENTS, END OF PERIOD                            $   6,218,461     $   5,620,724
                                                                      ============      ============
</TABLE>


      The accompanying notes are an integral part of these financial statements.





                                       4
<PAGE>   7
                       REAL ESTATE ASSOCIATES LIMITED IV
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                         NOTES TO FINANCIAL STATEMENTS

                                 JUNE 30, 1996

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         GENERAL

         The information contained in the following notes to the financial
         statements is condensed from that which would appear in the annual
         audited financial statements; accordingly, the financial statements
         included herein should be reviewed in conjunction with the financial
         statements and related notes thereto contained in the annual report
         for the year ended December 31, 1995 filed by Real Estate Associates
         Limited IV (the "Partnership").  Accounting measurements at interim
         dates inherently involve greater reliance on estimates than at year
         end.  The results of operations for the interim period presented are
         not necessarily indicative of the results for the entire year.

         In the opinion of the Partnership, the accompanying unaudited
         financial statements contain all adjustments (consisting primarily of
         normal recurring accruals) necessary to present fairly the financial
         position as of June 30, 1996 and the results of operations and changes
         in cash flows for the six months then ended.

         The general partners have a 1 percent interest in profits and losses
         of the Partnership.  The limited partners have the remaining 99
         percent interest which is allocated in proportion to their respective
         individual investments.  National Partnership Investments Corp.
         (NAPICO) is the corporate general partner of the Partnership.

         USE OF ESTIMATES

         The preparation of financial statements in conformity with generally
         accepted accounting principles requires management to make estimates
         and assumptions that affect the reported amounts of assets and
         liabilities and disclosure of contingent assets and liabilities at the
         date of the financial statements and reported amounts of revenues and
         expenses during the reporting period.  Actual results could differ
         from those estimates.

         METHOD ACCOUNTING FOR INVESTMENT IN LIMITED PARTNERSHIPS

         The investment in limited partnerships is accounted for on the equity
         method.  Acquisition and selection fees and other costs related to the
         acquisition of the projects have been capitalized as part of the
         investment account.

         NET INCOME PER LIMITED PARTNERSHIP INTEREST

         Net income per limited partnership interest was computed by dividing
         the limited partners' share of net income by the number of limited
         partnership interests outstanding during the year.  The number of
         limited partnership interests was 13,202 for the periods presented.

         CASH AND CASH EQUIVALENTS

         Cash and cash equivalents consist of cash and bank certificates of 
         deposit with an original maturity of three months or less.



                                         5
<PAGE>   8

                       REAL ESTATE ASSOCIATES LIMITED IV
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                                 JUNE 30, 1996

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

         SHORT TERM INVESTMENTS

         Short term investments consist of bank certificates of deposit with
         original maturities ranging from more than three months to twelve
         months.  The fair value of these securities, which have been
         classified as held for sale, approximates their carrying value.

         INCOME TAXES

         No provision has been made for income taxes in the accompanying
         financial statements since such taxes, if any, are the liability of
         the individual partners.

NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS

         The Partnership holds limited partnership interests in twenty-two
         limited partnerships.  In addition, the Partnership holds a general
         partner interest in REA II.  NAPICO is also a general partner in REA
         II.  REA II, in turn, holds limited partner interests in seven
         additional limited partnerships.  In total, therefore, the Partnership
         holds interests, either directly or indirectly through REA II, in
         twenty-nine partnerships which own residential rental projects
         consisting of 2,783 apartment units.  The mortgage loans of these
         projects are insured by various governmental agencies.

         The Partnership, as a limited partner, is entitled to between 80
         percent and 99 percent of the profits and losses of the limited
         partnerships it has invested in directly.  The Partnership is also
         entitled to 99.9 percent of the profits and losses of REA II.  REA II
         is entitled to a 99 percent interest in each of the limited
         partnerships in which it has invested.

         Equity in loss of the limited partnerships is recognized until the
         investment balance is reduced to zero.  Losses incurred after the
         limited partnership investment account is reduced to zero are not
         recognized.

         Distributions from the limited partnerships are accounted for as a
         return of capital until the investment balance is reduced to zero or
         to a negative amount equal to further capital contributions required.
         Subsequent distributions received are recognized as income.

         Certain of the Partnership's investments involved purchases of
         partnership interest from partners who subsequently withdrew from the
         operating partnership.  The Partnership is obligated on non-recourse
         notes payable of $1,230,743 bearing interest at 10 percent, to the
         sellers of the partnership interests.  The notes and the related
         interest are payable by the Partnership through REA II, and have
         principal maturity dates ranging from 2015 to 2022 or upon sale or
         refinancing of the underlying partnership properties.  The notes are
         collateralized by REA II's investment in the respective limited
         partnerships and are payable only out of cash distributions from the
         investee partnerships as defined in the notes.  Unpaid interest is due
         at maturity of the notes.





                                       6
<PAGE>   9
                      REAL ESTATE ASSOCIATES LIMITED IV (A
                               CALIFORNIA LIMITED
                                  PARTNERSHIP)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                                 JUNE 30, 1996

NOTE 2 - INVESTMENT IN LIMITED PARTNERSHIPS (CONTINUED)

         The following is a summary of the investment in limited partnerships as
         of June 30, 1996:

<TABLE>
         <S>                                                   <C>
         Balance, beginning of period                           $3,221,339
         Equity in income of limited partnerships                  330,000
         Distributions recognized as a return of capital           (38,239)
         Amortization of acquisition costs                         (90,000)
                                                                ---------- 

         Balance, end of period                                 $3,423,100
                                                                ==========
</TABLE>

         The following are unaudited combined estimated statements of
         operations for the six months ended June 30, 1996 and 1995 for the
         limited partnerships in which the Partnership has investments:

<TABLE>
<CAPTION>
                                          Six months        Three months        Six months       Three months
                                            ended               ended              ended             ended
                                        June 30, 1996       June 30, 1996      June 30, 1995     June 30, 1995
                                        -------------       -------------      -------------     -------------
          <S>                           <C>                   <C>             <C>               <C>
          INCOME
            Rental and other             $11,749,000           $5,875,000       $11,742,000      $ 5,871,000
                                         -----------           ----------       -----------      -----------

          EXPENSES
            Depreciation                   1,882,000              941,000         1,840,000          920,000
            Interest                       4,044,000            2,022,000         4,154,000        2,077,000
            Operating                      5,854,000            2,927,000         5,714,000        2,857,000
                                           ---------            ---------       -----------      -----------

                                          11,780,000            5,890,000        11,708,000        5,854,000
                                          ----------            ---------       -----------      -----------

            Net (loss) income           $   (31,000)          $   (15,000)    $      34,000     $     17,000
                                        ============          ============    =============     ============
</TABLE>

         NAPICO, or one of its affiliates, is the general partner and property
         management agent for certain of the limited partnerships included
         above.

NOTE 3 - MORTGAGE NOTES PAYABLE

         The Rosewood Apartments mortgage note outstanding at June 30, 1996 has
         an interest rate of 9.5 percent per annum, with principal and interest
         payments due monthly.  The note matures in August 1996 and is in the
         process of being refinanced.  The Partnership is of the opinion that
         it will obtain financing at comparable terms.

         The note is collateralized by the underlying rental property.

         Authorization was granted to Lakeland Place to proceed with the
         request for a $3,200,000 loan from the Partnership's excess reserves.
         If approval is granted, the loan is expected to close by the end of
         August and the proceeds used to retire existing debt.





                                       7
<PAGE>   10
                      REAL ESTATE ASSOCIATES LIMITED IV (A
                               CALIFORNIA LIMITED
                                  PARTNERSHIP)
                                        
                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)

                                 JUNE 30, 1996


NOTE 4 - MANAGEMENT FEE AND EXPENSES DUE TO GENERAL PARTNER

         Under the terms of the Restated Certificate and Agreement of Limited
         Partners, the Partnership is obligated to NAPICO for an annual
         management fee equal to .4% of the invested assets of the limited
         partnerships.  Invested assets are defined as the costs of acquiring
         project interests, including the proportionate amount of the mortgage
         loans related to the Partnership's interests in the capital accounts
         of the respective partnerships.  The fee was $252,696 for the six
         months ended June 30, 1996 and 1995.

         The Partnership reimburses NAPICO for certain expenses.  The
         reimbursement paid to NAPICO was approximately $16,000 for the six
         months ended June 30, 1996 and 1995, and is included in administrative
         expenses.

NOTE 5 - CONTINGENCIES

         The corporate general partner of the partnership is a plaintiff in
         various lawsuits and has also been named a defendant in other lawsuits
         arising from transactions in the ordinary course of business.  In the
         opinion of management and the corporate general partner, the claims
         will not result in any material liability to the Partnership.

NOTE 6 - FAIR VALUE OF FINANCIAL INSTRUMENTS

         Statement of Financial Accounting Standards No. 107, "Disclosure about
         Fair Value of Financial Instruments," requires disclosure of fair
         value information about financial instruments, when it is practicable
         to estimate that value.  The notes payable are collateralized by the
         Partnership's investments in the investee limited partnerships and are
         payable only out of cash distributions from the investee partnerships.
         The operations generated by the investee limited partnerships are
         subject to various government rules, regulations and restrictions
         which make it impracticable to estimate the fair value of  the notes
         payable and related accrued interest.  The carrying amount of other
         assets and liabilities reported on the balance sheets that require
         such disclosure approximates fair value due to their short-term
         maturity.





                                       8
<PAGE>   11
                       REAL ESTATE ASSOCIATES LIMITED IV
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                                 JUNE 30, 1996


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS

         LIQUIDITY AND CAPITAL RESOURCES

         The Partnership's primary sources of funds include interest income
         earned from investing available cash and distributions from limited
         partnerships in which the Partnership has invested.  It is not
         expected that any of the local limited partnerships in which the
         Partnership has invested will generate cash flow sufficient to provide
         for distributions to limited partners in any material amount.

         RESULTS OF OPERATIONS

         Partnership revenues consist primarily of interest income earned on
         certificates of deposit and other temporary investment of funds not
         required for investment in local partnerships.

         Operating expenses consist primarily of recurring general and
         administrative expenses and professional fees for services rendered to
         the Partnership.  In addition, an annual Partnership management fee in
         an amount equal to .5 percent of investment assets is payable to the
         corporate general partner.

         The Partnership accounts for its investments in the local limited
         partnerships on the equity method, thereby adjusting its investment
         balance by its proportionate share of the income or loss of the local
         limited partnerships.  Losses incurred after the limited partnership
         investment balance is reduced to zero are not recognized.

         Distributions received from limited partnerships are recognized as
         return of capital until the investment balance has been reduced to
         zero or to a negative amount equal to future capital contributions
         required.  Subsequent distributions received are recognized as income.

         Except for certificates of deposit and money market funds, the
         Partnership's investments are entirely interests in other limited
         partnerships owning government assisted projects.  Available cash not
         invested in Limited Partnerships is invested in these funds earning
         interest income as reflected in the statements of operations.  These
         money market funds and certificates of deposit can be converted to
         cash to meet obligations as they arise.  The Partnership intends to
         continue investing available funds in this manner.





                                       9
<PAGE>   12
                       REAL ESTATE ASSOCIATES LIMITED IV
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                                 JUNE 30, 1996


PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

As of June 30, 1996, the Partnership's Corporate General Partner was a
plaintiff or defendant in several suits.  None of the litigation involving the
General Partner are related to REAL IV.


ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

         (a)     No exhibits are required per the provision of Item 7 of
                 regulation S-K.





                                         10
<PAGE>   13
                       REAL ESTATE ASSOCIATES LIMITED IV
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                                 JUNE 30, 1996


                                   SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                     REAL ESTATE ASSOCIATES LIMITED IV
                     (a California limited partnership)


                     By:     National Partnership Investments Corp.,
                             General Partner


                     Date:                                               
                           ----------------------------------------------



                     By:                                                      
                             --------------------------------------------
                             Bruce Nelson
                             President



                     Date:                                                 
                           ------------------------------------------------



                     By:                                                      
                             ---------------------------------------------
                             Shawn Horwitz
                             Executive Vice President and
                             Chief Financial Officer




                                       11

<TABLE> <S> <C>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
PARTNERSHIP'S STATEMENTS OF EARNINGS AND BALANCE SHEETS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
       
<S>                             <C>
<PERIOD-TYPE>                   6-MOS
<FISCAL-YEAR-END>                          DEC-31-1996
<PERIOD-START>                             JAN-01-1996
<PERIOD-END>                               JUN-30-1996
<CASH>                                       6,218,461
<SECURITIES>                                         0
<RECEIVABLES>                                        0
<ALLOWANCES>                                         0
<INVENTORY>                                          0
<CURRENT-ASSETS>                             6,393,461
<PP&E>                                               0
<DEPRECIATION>                                       0
<TOTAL-ASSETS>                               9,816,561
<CURRENT-LIABILITIES>                            8,897
<BONDS>                                              0
                                0
                                          0
<COMMON>                                             0
<OTHER-SE>                                   8,239,957
<TOTAL-LIABILITY-AND-EQUITY>                 9,816,561
<SALES>                                              0
<TOTAL-REVENUES>                             1,331,523
<CGS>                                                0
<TOTAL-COSTS>                                        0
<OTHER-EXPENSES>                               359,869
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                              61,500
<INCOME-PRETAX>                                910,154
<INCOME-TAX>                                         0
<INCOME-CONTINUING>                            910,154
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                   910,154
<EPS-PRIMARY>                                        0
<EPS-DILUTED>                                        0
        

</TABLE>


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