<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended SEPTEMBER 30, 1998
Commission File Number 0-12439
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
Indicate by check mark whether the registrant (1) has filed all documents and
reports required to be filed 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 SEPTEMBER 30, 1998
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets, September 30, 1998 and December 31, 1997.........................................1
Statements of Operations,
Nine and Three Months Ended September 30, 1998 and 1997 ..................................2
Statement of Partners' Equity (Deficiency),
Nine Months Ended September 30, 1998 .....................................................3
Statements of Cash Flows,
Nine Months Ended September 30, 1998 and 1997 ............................................4
Notes to Financial Statements ...................................................................5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations .....................................................10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.................................................................................12
Item 6. Exhibits and Reports on Form 8- K ..............................................................12
Signatures................................................................................................13
</TABLE>
<PAGE> 3
REAL ESTATE ASSOCIATES LIMITED IV
(A CALIFORNIA LIMITED PARTNERSHIP)
BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
1998
(Unaudited) 1997
------------ ------------
<S> <C> <C>
INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2) $ 3,646,988 $ 3,374,262
CASH AND CASH EQUIVALENTS (Note 1) 7,676,175 7,430,796
OTHER ASSETS 290,545 91,899
------------ ------------
TOTAL ASSETS $ 11,613,708 $ 10,896,957
============ ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIENCY)
LIABILITIES:
Notes payable (Notes 2 and 5) $ 1,042,524 $ 1,042,524
Interest payable (Notes 2 and 5) 201,455 320,101
Accounts payable 141,389 130,851
------------ ------------
1,385,368 1,493,476
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 4)
PARTNERS' EQUITY (DEFICIENCY):
General partners (169,746) (177,995)
Limited partners 10,398,086 9,581,476
------------ ------------
10,228,340 9,403,481
------------ ------------
TOTAL LIABILITIES AND PARTNERS'
EQUITY $ 11,613,708 $ 10,896,957
============ ============
</TABLE>
The accompanying notes are an integral part of these financial
statements.
1
<PAGE> 4
REAL ESTATE ASSOCIATES LIMITED IV
(A CALIFORNIA LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
Nine months Three months Nine months Three months
ended ended ended ended
Sept. 30, 1998 Sept. 30, 1998 Sept. 30, 1997 Sept. 30, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
INTEREST INCOME $ 268,560 $ 88,511 $ 236,477 $ 87,613
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Legal and accounting 92,290 20,249 167,991 77,650
Management fees - general partner (Note 3) 379,044 126,348 379,044 126,348
Interest (Note 2) 78,189 26,063 83,696 27,889
Administrative (Notes 2 and 3) 545,631 243,474 70,887 25,913
----------- ----------- ----------- -----------
TOTAL OPERATING EXPENSES 1,095,154 416,134 701,618 257,800
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (826,594) (327,623) (465,141) (170,187)
DISTRIBUTIONS FROM LIMITED
PARTNERSHIPS RECOGNIZED AS
INCOME (Note 2) 1,380,703 608,771 1,357,731 36,600
EQUITY IN INCOME (LOSS) OF LIMITED
PARTNERSHIPS AND AMORTIZATION
OF ACQUISITION COSTS 270,750 90,250 42,000 14,000
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 824,859 $ 371,398 $ 934,590 $ (119,587)
=========== =========== =========== ===========
NET INCOME (LOSS) PER LIMITED
PARTNERSHIP INTEREST (Note 1) $ 62 $ 27 $ 71 $ (9)
=========== =========== =========== ===========
</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)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
----------- ----------- -----------
<S> <C> <C> <C>
PARTNERSHIP INTERESTS 13,202
===========
EQUITY (DEFICIENCY),
January 1, 1998 $ (177,995) $ 9,581,476 $ 9,403,481
Net income for the nine months
ended September 30, 1998 8,249 816,610 824,859
----------- ----------- -----------
EQUITY (DEFICIENCY),
September 30, 1998 $ (169,746) $10,398,086 $10,228,340
=========== =========== ===========
</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
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 824,859 $ 934,590
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 (270,750) (42,000)
Increase in other assets (198,646) (7,171)
Decrease in accounts payable and
interest payable (108,108) (24,645)
----------- -----------
Net cash provided by operating activities 247,355 860,774
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital contributions to limited partnership (102,500) --
Distributions from limited partnerships
recognized as return of capital 100,524 31,347
----------- -----------
Net cash (used in) provided by investing activities (1,976) 31,347
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 245,379 892,121
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 7,430,796 6,603,047
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,676,175 $ 7,495,168
=========== ===========
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the period for interest $ 196,835 $ --
=========== ===========
</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
SEPTEMBER 30, 1998
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, 1997 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 September 30, 1998 and the results of operations for the nine and
three months then ended and changes in cash flows for the nine 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. NAPICO is a wholly owned
subsidiary of Casden Investment Corporation, which is wholly owned by
Alan I. Casden.
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 and are being amortized on a straight line basis over
the estimated lives of the underlying assets, which is generally 30
years.
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.
5
<PAGE> 8
REAL ESTATE ASSOCIATES LIMITED IV
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. The
Partnership has its cash and cash equivalents on deposit primarily with
two high credit quality financial institutions. Such cash and cash
equivalents are in excess of the FDIC insurance limit.
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.
IMPAIRMENT OF LONG-LIVED ASSETS
The Partnership reviews long-lived assets to determine if there has been
any permanent impairment whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable.
If the sum of the expected future cash flows is less than the carrying
amount of the assets, the Partnership recognizes an impairment loss.
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 the
United States Department of Housing and Urban Development ("HUD") or
state 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.
6
<PAGE> 9
REAL ESTATE ASSOCIATES LIMITED IV
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
The following is a summary of the investment in limited partnerships for
the nine months ended September 30, 1998:
<TABLE>
<S> <C>
Balance, beginning of period $3,374,262
Capital contributions 102,500
Equity in income of limited partnerships 400,500
Distributions recognized as a return of capital (100,524)
Amortization of acquisition costs (129,750)
----------
Balance, end of period $3,646,988
</TABLE>
The following are unaudited combined estimated statements of operations
for the nine and three months ended September 30, 1998 and 1997 for the
limited partnerships in which the Partnership has investments:
<TABLE>
<CAPTION>
Nine months Three months Nine months Three months
ended ended ended ended
Sept. 30, 1998 Sept. 30, 1998 Sept. 30, 1997 Sept. 30, 1997
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES
Rental and other $ 18,162,000 $ 6,054,000 $ 17,961,000 $ 5,987,000
------------ ------------ ------------ ------------
EXPENSES
Depreciation 2,793,000 931,000 2,766,000 922,000
Interest 5,982,000 1,994,000 6,129,000 2,043,000
Operating 9,147,000 3,049,000 9,867,000 3,289,000
------------ ------------ ------------ ------------
17,922,000 5,974,000 18,762,000 6,254,000
------------ ------------ ------------ ------------
Net income (loss) $ 240,000 $ 80,000 $ (801,000) $ (267,000)
============ ============ ============ ============
</TABLE>
The difference between the investment per the accompanying balance
sheets at September 30, 1998 and December 31, 1997, and the deficiency
per the unaudited combined estimated statements of operations is due
primarily to cumulative unrecognized equity in losses of certain limited
partnerships, costs capitalized to the investment account and cumulative
distributions recognized as income.
NAPICO, or one of its affiliates, is the general partner and property
management agent for certain of the limited partnerships included above.
Under recently adopted law and policy, HUD has determined not to renew
housing assistance payments contracts ("HAP Contracts") on their
existing terms. In connection with renewals of the HAP Contracts under
such new law and policy, the amount of rental assistance payments under
renewed HAP Contracts will be based on market rentals instead of above
market rentals, which was generally the case under existing HAP
Contracts. As a result, existing HAP Contracts that are renewed in the
future on projects insured by the Federal Housing Administration of HUD
("FHA") will not provide sufficient cash flow to permit owners of
properties to meet the debt service requirements of these
7
<PAGE> 10
REAL ESTATE ASSOCIATES LIMITED IV
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
existing FHA-insured mortgages. In order to address the reduction in
payments under HAP Contracts as a result of this new policy, the
Multi-family Assisted Housing Reform and Affordability Act of 1997
("MAHRAA"), which was adopted in October 1997, provides for the
restructuring of mortgage loans insured by the FHA with respect to
properties subject to HAP Contracts that have been renewed under the new
policy. The restructured loans will be held by the current lender or
another lender. Under MAHRAA, an FHA-insured mortgage loan can be
restructured to reduce the annual debt service on such loan. There can
be no assurance that the Partnership will be permitted to restructure
its mortgage indebtedness pursuant to the new HUD rules implementing
MAHRAA or that the Partnership would choose to restructure such mortgage
indebtedness if it were eligible to participate in the MAHRAA program.
It should be noted that there are uncertainties as to the economic
impact on the Partnership of the combination of the reduced payments
under the HAP Contracts and the restructuring of the existing
FHA-insured mortgage loans under MAHRAA. Accordingly, the General
Partners are unable to predict with certainty their impact on the
Partnership's future cash flow.
As a result of the foregoing, the Partnership is undergoing an extensive
review of the properties in which the limited partnerships have invested
that are subject to HUD mortgages and which may be sold to the REIT as
set forth below. The Partnership has incurred expenses in connection
with this review by various third party professionals, including
accounting, legal, valuation, structural review and engineering costs,
which amounted to approximately $652,000 through September 30, 1998
including approximately $467,000 and $56,000 for the nine months ended
September 30, 1998 and 1997, respectively, which are included in general
and administrative expenses.
A real estate investment trust ("REIT") organized by affiliates of
NAPICO has advised the Partnership that it intends to make a proposal to
purchase from the Partnership certain of the limited partnership
interests held for investment by the Partnership.
The REIT proposes to purchase such limited partnership interests for
cash, which it plans to raise in connection with a private placement of
its equity securities. The purchase is subject to, among other things,
(i) consummation of such private placement by the REIT; (ii) the
purchase of the general partnership interests in the local limited
partnerships by the REIT; (iii) the approval of HUD and certain state
housing finance agencies; (iv) the consent of the limited partners to
the sale of the local limited partnership interests held for investment
by REAL IV; and (v) the consummation of a minimum number of purchase
transactions with other NAPICO affiliated partnerships.
A consent solicitation statement has been sent to the limited partners
setting forth the terms and conditions of the purchase of the limited
partners' interests held for investment by the Partnership, together
with certain amendments to the Partnership Agreement and other
disclosures of various conflicts of interest in connection with the
proposed transaction. As of November 2, 1998, the consents of the
limited partners to the sale of the partnership interests and amendments
to the Partnership Agreement have been obtained. In addition, the REIT
has completed buy-out negotiations with a majority of the general
partners of the local limited partnerships and has obtained approval
from HUD.
8
<PAGE> 11
REAL ESTATE ASSOCIATES LIMITED IV
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
NOTE 2 - INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)
Certain of the Partnership's investments involved purchases of
partnership interests from partners who subsequently withdrew from the
operating partnership. The Partnership is obligated on non-recourse
notes payable of $1,042,524 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.
NOTE 3 - 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 percent 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 approximately $379,000 for the
nine months ended September 30, 1998 and 1997.
The Partnership reimburses NAPICO for certain expenses. The
reimbursement paid to NAPICO was approximately $28,000 and $26,000 for
the nine months ended September 30, 1998 and 1997, respectively, and is
included in administrative expenses.
NOTE 4 - CONTINGENCIES
On August 27, 1998, two investors holding an aggregate of eight units of
limited partnership interests in Real Estate Associates Limited III (an
affiliated partnership in which NAPICO is the managing general partner)
and two investors holding an aggregate of five units of limited
partnership interest in Real Estate Associates Limited VI (another
affiliated partnership in which NAPICO is the managing general partner)
commenced an action in the United States District Court for the Central
District of California against the Partnership, NAPICO and certain other
affiliated entities. The complaint alleges that the defendants breached
their fiduciary duty to the limited partners of certain NAPICO managed
partnerships and made materially false and misleading statements in the
consent solicitation statements sent to the limited partners of such
partnerships relating to approval of the transfer of partnership
interests in limited partnerships, owning certain of the properties, to
the REIT (Note 2). The plaintiffs seek preliminary and permanent
injunctive relief and other equitable relief, as well as compensatory
and punitive damages. The managing general partner of such NAPICO
partnerships and the other defendants believe that the plaintiffs'
claims are without merit and intend to contest the action vigorously.
9
<PAGE> 12
REAL ESTATE ASSOCIATES LIMITED IV
(A CALIFORNIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
NOTE 4 - CONTINGENCIES (CONTINUED)
The corporate general partner of the Partnership is involved in various
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.
The Partnership has assessed the potential impact of the Year 2000
computer systems issue on its operations. The Partnership believes that
no significant actions are required to be taken by the Partnership to
address the issue and that the impact of the Year 2000 computer systems
issue will not materially affect the Partnership's future operating
results or financial condition.
NOTE 5 - 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.
10
<PAGE> 13
REAL ESTATE ASSOCIATES LIMITED IV
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1998
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 the Partnership's 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 .4 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.
Under recently adopted law and policy, HUD has determined not to renew
housing assistance payments contracts ("HAP Contracts") on their
existing terms. In connection with renewals of the HAP Contracts under
such new law and policy, the amount of rental assistance payments under
renewed HAP Contracts will be based on market rentals instead of above
market rentals, which was generally the case under existing HAP
Contracts. As a result, existing HAP Contracts that are renewed in the
future on projects insured by the Federal Housing Administration of HUD
("FHA") will not provide sufficient cash flow to permit owners of
properties to meet the debt service requirements of these existing
FHA-insured mortgages. In order to address the reduction in payments
under HAP Contracts as a result of this new policy, the Multi-family
Assisted Housing Reform and Affordability Act of 1997 ("MAHRAA"), which
was adopted in October 1997, provides for the restructuring of mortgage
loans insured by the FHA with respect to properties subject to HAP
Contracts that have been renewed under the new policy. The
11
<PAGE> 14
REAL ESTATE ASSOCIATES LIMITED IV
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS (CONTINUED)
restructured loans will be held by the current lender or another lender.
Under MAHRAA, an FHA-insured mortgage loan can be restructured to reduce
the annual debt service on such loan. There can be no assurance that the
Partnership will be permitted to restructure its mortgage indebtedness
pursuant to the new HUD rules implementing MAHRAA or that the
Partnership would choose to restructure such mortgage indebtedness if it
were eligible to participate in the MAHRAA program. It should be noted
that there are uncertainties as to the economic impact on the
Partnership of the combination of the reduced payments under the HAP
Contracts and the restructuring of the existing FHA-insured mortgage
loans under MAHRAA. Accordingly, the General Partners are unable to
predict with certainty their impact on the Partnership's future cash
flow.
As a result of the foregoing, the Partnership is undergoing an extensive
review of the properties in which the limited partnerships have invested
that are subject to HUD mortgages and which may be sold to the REIT as
set forth below. The Partnership has incurred expenses in connection
with this review by various third party professionals, including
accounting, legal, valuation, structural review and engineering costs,
which amounted to approximately $652,000 through September 30, 1998
including approximately $467,000 and $56,000 for the nine months ended
September 30, 1998 and 1997, respectively, which are included in general
and administrative expenses.
A real estate investment trust ("REIT") organized by affiliates of
NAPICO has advised the Partnership that it intends to make a proposal to
purchase from the Partnership certain of the limited partnership
interests held for investment by the Partnership.
The REIT proposes to purchase such limited partnership interests for
cash, which it plans to raise in connection with a private placement of
its equity securities. The purchase is subject to, among other things,
(i) consummation of such private placement by the REIT; (ii) the
purchase of the general partnership interests in the local limited
partnerships by the REIT; (iii) the approval of HUD and certain state
housing finance agencies; (iv) the consent of the limited partners to
the sale of the local limited partnership interests held for investment
by REAL IV; and (v) the consummation of a minimum number of purchase
transactions with other NAPICO affiliated partnerships.
A consent solicitation statement has been sent to the limited partners
setting forth the terms and conditions of the purchase of the limited
partners' interests held for investment by the Partnership, together
with certain amendments to the Partnership Agreement and other
disclosures of various conflicts of interest in connection with the
proposed transaction. As of November 2, 1998, the consents of the
limited partners to the sale of the partnership interests and amendments
to the Partnership Agreement have been obtained. In addition, the REIT
has completed buy-out negotiations with a majority of the general
partners of the local limited partnerships and has obtained approval
from HUD.
12
<PAGE> 15
REAL ESTATE ASSOCIATES LIMITED IV
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1998
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 27, 1998, two investors holding an aggregate of eight units of
limited partnership interests in Real Estate Associates Limited III (an
affiliated partnership in which NAPICO is the managing general partner)
and two investors holding an aggregate of five units of limited
partnership interest in Real Estate Associates Limited VI (another
affiliated partnership in which NAPICO is the managing general partner)
commenced an action in the United States District Court for the Central
District of California against the Partnership, NAPICO and certain other
affiliated entities. The complaint alleges that the defendants breached
their fiduciary duty to the limited partners of certain NAPICO managed
partnerships and made materially false and misleading statements in the
consent solicitation statements sent to the limited partners of such
partnerships relating to approval of the transfer of partnership
interests in limited partnerships, owning certain of the properties, to
the REIT (Note 2). The plaintiffs seek preliminary and permanent
injunctive relief and other equitable relief, as well as compensatory
and punitive damages. The managing general partner of such NAPICO
partnerships and the other defendants believe that the plaintiffs'
claims are without merit and intend to contest the action vigorously.
The Partnership's Corporate General Partner is involved in various
lawsuits. None of these are related to REAL IV.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A report 8-K relating to an unsolicited offer to buy units of limited
partnership interests (the "Units"), as discussed below, was filed with
the Securities and Exchange Commission during the quarter ended
September 30, 1998.
On June 26, 1998, Everest Management, L.L.C. and, on November 26, 1997,
Bond Purchase L.L.C. (the "Buyers") made unsolicited tender offers to
buy a certain number of Units in the Partnership for a price of $100 and
$307, respectively, per Unit. The Buyers did not contact the Corporate
General Partner prior to commencing their tender offers. By letter dated
July 15, 1998, the Corporate General Partner advised limited partners
that it had determined not to take a position with respect to the tender
offer but cautioned limited partners to consider certain items before
determining whether to tender their Units to the Buyer. Copies of the
letters from the Buyers are attached as Exhibits to this form 10-Q.
13
<PAGE> 16
REAL ESTATE ASSOCIATES LIMITED IV
(A CALIFORNIA LIMITED PARTNERSHIP)
SEPTEMBER 30, 1998
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
/s/ PAUL PATIERNO
-----------------------------------
Paul Patierno
Chief Financial Officer
Date:
-----------------------------------
/s/ CHARLES BOXENBAUM
-----------------------------------
Charles Boxenbaum
Chief Executive Officer
Date:
-----------------------------------
14
<PAGE> 17
[EVEREST MANAGEMENT, LLC, LETTERHEAD]
November 26, 1977
To the holders of Units in
REAL ESTATE ASSOCIATES LTD. IV
RE: 1997 YEAR END OFFER TO PURCHASE UNITS
We are offering you an opportunity to sell your limited partnership
interests (the "Units") in Real Estate Associates Ltd. IV (the "Partnership")
for cash in the amount of $100 per Unit, and insure a 1997 liquidation of your
investment.
What benefits does a seller receive? Most individual sellers will
receive the following:
a. Termination of K-1 taxable income without cash distributions after 1997.
b. Possible current tax loss from sale in 1997.
c. $100 per Unit in cash now.
Why does our company want to purchase these Units? We are a tax exempt
investor which will not suffer from the phantom income generated by this
Partnership. We do not need a current cash return on our investment and can
wait for the Partnership to be liquidated.
Investors should also consider the following facts:
- SELLING INDIVIDUAL INVESTORS PAID APPROXIMATELY $29 PER UNIT IN
TAXES IN 1996 TO HOLD THIS INVESTMENT. SUCH TAX LIABILITY IS LIKELY TO BE THE
SAME OR GREATER IN 1997.*
- Liquidity now. The Partnership was formed over 16 years ago, and we
are aware of plans to liquidate the Partnership.
- THE PARTNERSHIP HAS MADE NO DISTRIBUTIONS OVER THE PAST FOUR YEARS.
DURING THAT PERIOD YOU HAVE INCURRED TAXABLE INCOME OF $251 PER UNIT.
- Selling will allow you to end the high cost (perhaps over $100 per
year) of holding Units.
- SALE OF YOUR UNITS WILL ELIMINATE TROUBLESOME K-1'S AFTER 1997.
*Assumes a combined 40% federal and state tax rate.
<PAGE> 18
Our offer is limited to only 646 (4.9%) of the 13,200 outstanding Units.
WE WILL ACCEPT FOR PURCHASE PROPERLY DOCUMENTED UNITS ON A "FIRST-RECEIVED,
FIRST BUY" BASIS. You will be paid promptly following confirmation by the
Partnership of a valid transfer. The purchase price will be reduced by any cash
distributions made to you by the Partnership after October 31, 1997, and any
transfer fees charged by the Partnership. ALL TENDERS OF UNITS WILL BE
IRREVOCABLE AND MAY NOT BE RESCINDED OR WITHDRAWN.
We are a specialized investment company which is not affiliated with the
Partnership or the general partner. We are seeking to acquire Units for
investment purposes only. We urge you to contact your tax advisor regarding
your particular tax consequences from a sale.
AN AGREEMENT OF TRANSFER IS ENCLOSED WHICH YOU CAN USE TO ACCEPT OUR
OFFER. Please execute this document and return it (together with the original
Partnership certificate, if available) in the enclosed envelope.
We encourage you to act immediately if you are interested in accepting our
offer, as only a limited number of Units will be purchased.
OUR OFFER WILL EXPIRE ON DECEMBER 24, 1997.
Please call us at (800) 611-4613 if you have any questions.
EVEREST MANAGEMENT, LLC
<PAGE> 19
EXHIBIT 3
BOND PURCHASE L.L.C.
P.O. Box 26730
Kansas City, MO 64196
June 26, 1998
To the Holders of Limited Partnership Interests in Real Estate Associates
Limited IV.
RE: OFFER TO PURCHASE LIMITED PARTNERSHIP INTERESTS FOR $307.00
Dear Investor:
We are offering you an opportunity to sell your limited partnership
interests (the "Units") in Real Estate Associates Limited IV (the
"Partnership") for cash in the amount of $307.00 per Unit (which amount will be
reduced by any cash distributions declared by the Partnership after the date of
this letter). Our offer provides you with an opportunity to sell your Units now
without the costly transfer fees and commission costs (typically up to 10%)
usually paid by the seller in secondary market sales. ALL TRANSFER COSTS AND
FEES WILL BE PAID BY BOND PURCHASE, L.L.C.
We believe that it is appropriate for investors to have financial choices.
Our offer gives you, the investor, the ability to make a decision about your
continued involvement with the Partnership. You may no longer wish to continue
with your investment in the Partnership for a number of reasons, including:
- NO FURTHER IRS FILING.
- HIGHEST OFFER - This offer is higher than the last reported trade of
$300 (October 1, 1997 to December 31, 1997) in the secondary market.
- If you sell your units, 1998 will be the final year for which you
receive a K-1 tax form from the partnership.
- You may be able to realize a tax loss that would reduce your taxes for
1998.
- The Partnership was closed seventeen years ago in 1981. Your money has
been tied up for this long period with minimal return.
- More immediate use for the cash tied up in your investment in the Units.
- The absence of a formal trading market for the Units and their resulting
relative illiquidity.
<PAGE> 20
- The lack of any current cash distributions.
- General disenchantment with real estate investments, particularly
long-term investments in limited partnerships;
Our offer is limited to 655 of the 13,202 outstanding Units. If we were to
acquire more than this amount, the administrative costs of our offer would
become burdensome.
We will accept for purchase properly documented Units on a
"first-received, first-buy" basis. You will be paid promptly following
confirmation of a valid, properly executed Agreement of Transfer and other
required transfer documents. We will pay for all Partnership transfer fees and
costs. All tenders of Units will be irrevocable and may not be rescinded or
withdrawn.
We are real estate investors who are not affiliated with the Partnership
or the General Partners. The General Partners of the Partnership have not
analyzed, approved, endorsed or made any recommendation as to acceptance of the
offer. The purchase offer has been determined solely at the discretion of Bond
Purchase, L.L.C. and does not necessarily represent the true market value of
each unit. We are seeking to acquire Units for investment purposes only and not
with a view to their resale.
An Agreement of Transfer is enclosed which you can use to accept our
offer. Please execute page 3 of this document, as well as the Power of
Attorney. Obtain all other required signatures and return the documentation in
the enclosed envelope. Please note that all signatures must be medallion
guaranteed. The transfer cannot be processed without signatures that are
medallion guaranteed and failure to obtain them will result in needless delays.
In addition, place your Unit Certificate in the enclosed envelope. We
encourage you to act immediately if you are interested in accepted or offer as
only 655 Units will be purchased.
OUR OFFER WILL EXPIRE AT 5:00 PM ON JULY 31, 1998, UNLESS EXTENDED.
Please call John Katzer at (816) 421-4670 if you have any questions.
Sincerely,
Bond Purchase, L.L.C.
<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 7,676,175
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,966,720
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,613,708
<CURRENT-LIABILITIES> 141,389
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 10,228,340
<TOTAL-LIABILITY-AND-EQUITY> 11,613,708
<SALES> 0
<TOTAL-REVENUES> 1,920,013
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,016,965
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 78,189
<INCOME-PRETAX> 824,859
<INCOME-TAX> 0
<INCOME-CONTINUING> 824,859
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 824,859
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
