<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
-----------------
Commission file number 0-13523
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CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
- --------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 52-1328767
- ----------------------------------------- ---------------------
(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)
(Registrant's telephone number,
including area code) (301) 468-9200
---------------------
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 PARTNERSHIP UNITS
- --------------------------------------------------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not 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-K or any amendment to this
Form 10-K (X)
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-IV LIMITED PARTNERSHIP
1995 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
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Page
----
Item 1. Business . . . . . . . . . . . . . . . . . . . . . I-1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . I-9
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . I-9
Item 4. Submission of Matters to a Vote
of Security Holders . . . . . . . . . . . . . . I-9
PART II
-------
Item 5. Market for the Registrant's Partnership
Interests and Related Partnership Matters . . . II-1
Item 6. Selected Financial Data . . . . . . . . . . . . . II-1
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . II-2
Item 8. Financial Statements and Supplementary Data . . . II-12
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . II-12
PART III
--------
Item 10. Directors and Executive Officers
of the Registrant . . . . . . . . . . . . . . . III-1
Item 11. Executive Compensation . . . . . . . . . . . . . . III-2
Item 12. Security Ownership of Certain Beneficial
Owners and Management . . . . . . . . . . . . . III-4
Item 13. Certain Relationships and Related Transactions . . III-4
PART IV
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Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . IV-1
Signatures . . . . . . . . . . . . . . . . . . . . . . . . IV-3
Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . IV-33
<PAGE>
PART I
----------
ITEM 1. BUSINESS
--------
Capital Realty Investors-IV Limited Partnership (the Partnership) is a
limited partnership which was formed under the Maryland Revised Uniform Limited
Partnership Act on December 7, 1983. On June 13, 1984, the Partnership
commenced offering 75,000 limited partnership interests through a public
offering which was managed by Merrill Lynch, Pierce, Fenner & Smith Incorporated
(Merrill Lynch). The Partnership closed the offering on August 31, 1984 when
73,500 units of limited partnership interests became fully subscribed.
The General Partners of the Partnership are C.R.I., Inc. (CRI), which is
the Managing General Partner, and current and former shareholders of CRI. The
Initial Limited Partner of the Partnership is Rockville Pike Associates Limited
Partnership-IV, a limited partnership which includes certain officers and former
employees of CRI or its affiliates. The Special Limited Partner of the
Partnership is Two Broadway Associates-III, a limited partnership comprised of
an affiliate and employees of Merrill Lynch, Pierce, Fenner and Smith,
Incorporated. 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
partnership interest in limited partnerships (Local Partnerships). As of
December 31, 1995, the Partnership had investments in forty-three Local
Partnerships. Each of these Local Partnerships owns and operates 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 7, 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, and applied
for applicable mortgage insurance and/or subsidies, and remain as the local
general partners in the Local Partnerships. The Partnership became the
principal limited partner in forty of these Local Partnerships pursuant to
negotiations with these developers who act as the local general partners.
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 Partnership is limited to its investment. In three
Local Partnerships which are general partnerships, the Partnership has invested
as a limited partner in intermediary partnerships which, in turn, have invested
as general partners in the Local Partnerships. An affiliate of the Managing
I-1
<PAGE>
PART I
----------
ITEM 1. BUSINESS - Continued
--------
General Partner of the Partnership is also generally a general partner of the
forty Local Partnerships and the three intermediary partnerships. In most
cases, the local general partners of the Local Partnerships retain
responsibility for developing, constructing, maintaining, operating and managing
the project. Additionally, 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 General
Partners believe 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 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following is a schedule of the apartment complexes owned by Local
Partnerships in which the Partnership has an investment:
I-2
<PAGE>
SCHEDULE OF PROJECTS OWNED BY LOCAL PARTNERSHIPS
IN WHICH CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
HAS AN INVESTMENT(1)
<TABLE>
<CAPTION>
Units
Mortgage Authorized for
Name and Location Payable at Financed and/or Insured Number of Rental Asst.
of Apartment Complex 12/31/95 (2) and/or Subsidized Under Rental Units Under Sec. 8
- -------------------- ------------ ----------------------------- ------------ --------------
<S> <C> <C> <C> <C>
Asbury Tower $ 7,343,562 New Jersey Housing and 350 174
Asbury Park, NJ Mortgage Finance Agency
(NJHMFA)/236
Campbell Terrace 10,055,379 Illinois Housing Development 249 249
Chicago, IL Authority (IHDA)
Cannonsburg House 2,491,622 Pennsylvania Housing Finance 104 104
Cannonsburg, PA Agency (PHFA)
Cedar Point 2,486,737 IHDA/236 160 129
Springfield, IL
Char House 2,661,904 PHFA 104 104
Charleroi, PA
Chippewa County 1,732,949 Wisconsin Housing and Economic 109 109
Chippewa Falls, WI Development Authority (WHEDA)
Clearfield Hills I 829,588 Federal National Mortgage 100 47
Clearfield, UT Association (FNMA)/236
Clearfield Hills II 1,512,049 Conventional Mortgage/FNMA 76 0
Clearfield, UT
Cottonwood Park 1,814,293 FNMA/236 126 0
Shawnee Mission, KS
Crescent Gardens 1,761,434 GMAC/Section 221(d)(4) of the 100 100
Wilson, NC National Housing Act (NHA)
De Angelis Manor 1,552,570 Rhode Island Housing and 96 96
West Warwick, RI Mortgage Finance Corporation
(RIHMFC)
Fairway Park Apt. 8,186,522 IHDA 210 42
Naperville, IL
Forest Park Apt. 2,436,122 FNMA/236 284 0
New Orleans, LA
Garden Court 6,195,071 Section 221 (d)(4) of the NHA/ 284 284
Springfield, IL Section 8
Glenridge Gardens 2,317,052 FNMA/236 120 24
Augusta, ME
Hale Ohana 1,484,995 Farmers Home Administration 30 8
Koloa, Kauai, HI (FHA)/515
</TABLE>
I-3
<PAGE>
SCHEDULE OF PROJECTS OWNED BY LOCAL PARTNERSHIPS
IN WHICH CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
HAS AN INVESTMENT(1) - Continued
<TABLE>
<CAPTION>
Units
Mortgage Authorized for
Name and Location Payable at Financed and/or Insured Number of Rental Asst.
of Apartment Complex 12/31/95 (2) and/or Subsidized Under Rental Units Under Sec. 8
- -------------------- ------------ ----------------------------- ------------ --------------
<S> <C> <C> <C> <C>
Harborview $ 5,007,341 Section 221(d)(3) of the NHA 300 300
St. Croix, Virgin Islands
Highland Village 1,547,421 Massachusetts Housing Finance 111 12
Ware, MA Agency (MHFA)/236
Holiday Village 1,034,041 FHA/515 80 0
Park City, UT
Hometown Villages 1,993,617 WHEDA 178 178
Various cities, WI
Jewish Federation 4,231,347 NJHMFA/236 145 144
Cherry Hill, NJ
Lakes of Northdale 10,000,000 Florida Housing Finance 216 0
Tampa, FL Authority
Liberty Tower 2,568,569 PHFA 104 104
California, PA
Madison Square 4,125,831 Michigan State Housing Deve- 133 133
Grand Rapids, MI lopment Authority
Mary Allen West Tower 2,930,000 City of Galesburg 154 153
Galesburg, IL
Matthew XXV 1,566,001 RIHMFC 95 95
Warwick, RI
Northridge Park 5,351,590 California Housing Finance 104 0
Salinas, CA Agency (CHFA)
Pilgrim Tower East 5,723,955 CHFA 158 157
Pasadena, CA
Pilgrim Tower North 4,650,945 FNMA/236 258 156
Pasadena, CA
Redden Gardens 2,310,135 FNMA/236 150 30
Dover, NH
River Run Apt. 1,388,215 IHDA/236 100 36
Macomb, IL
Riverview Manor 1,240,077 WHEDA 76 76
Fort Atkinson, WI
</TABLE>
I-4
<PAGE>
SCHEDULE OF PROJECTS OWNED BY LOCAL PARTNERSHIPS
IN WHICH CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
HAS AN INVESTMENT(1) - Continued
<TABLE>
<CAPTION>
Units
Mortgage Authorized for
Name and Location Payable at Financed and/or Insured Number of Rental Asst.
of Apartment Complex 12/31/95 (2) and/or Subsidized Under Rental Units Under Sec. 8
- -------------------- ------------ ----------------------------- ------------ --------------
<S> <C> <C> <C> <C>
Scoville Center $ 3,108,609 WHEDA 151 151
Beloit, WI
Second Lakewood 3,201,518 Section 221(d)(4) of the NHA 219 0
Schaumburg, IL
Thornwood House 3,757,457 IHAD/236 183 73
University Park, IL
Tradewinds Terrace 1,697,784 FNMA/236 122 52
Traverse City, MI
Valley View 2,677,639 IHDA/236 179 0
Rockford, IL
Valley Vista 2,536,844 New York State Urban Development 124 78
Syracuse, NY Corporation/236
Village Apt. North 827,116 FNMA/236 92 92
Salt Lake City, UT
Walnut Square 3,403,682 FNMA/236 284 0
New Orleans, LA
Wellington Woods 2,123,859 FHA/515 109 73
Clarkson, NY
Westport Village 1,806,304 IHDA/236 121 0
Freeport, IL
Wollaston Manor 3,833,412 MHFA/236 164 25
Quincy, MA
- -------------------- ------------ -------- ------
Totals(3) 43 $139,505,158 6,612 3,588
============ ======== ======
</TABLE>
I-5
<PAGE>
SCHEDULE OF PROJECTS OWNED BY LOCAL PARTNERSHIPS
IN WHICH CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
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 1995 1994 1993 1992 1991 1995 1994 1993 1992 1991
- -------------------- ---- ---- ---- ---- ---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Asbury Tower 94% 92% 94% 98% 98% $ 5,272 $ 5,053 $ 5,139 $ 5,221 $ 5,029
Asbury Park, NJ
Campbell Terrace 100% 100% 100% 100% 100% 10,989 10,816 10,476 10,289 10,064
Chicago, IL
Cannonsburg House 96% 97% 98% 99% 100% 8,600 8,357 8,147 7,960 7,757
Cannonsburg, PA
Cedar Point 97% 95% 99% 99% 98% 4,477 4,340 4,281 4,116 4,014
Springfield, IL
Char House 100% 99% 98% 94% 98% 8,181 8,073 7,821 7,704 7,496
Charleroi, PA
Chippewa County 92% 94% 95% 99% 100% 5,063 5,059 6,787 4,990 4,744
Chippewa Falls, WI
Clearfield Hills I 99% 100% 100% 99% 99% 2,914 2,866 2,917 2,938 2,711
Clearfield, UT
Clearfield Hills II 100% 97% 99% 99% 97% 5,173 5,128 4,653 4,094 3,730
Clearfield, UT
Cottonwood Park 99% 99% 100% 98% 99% 4,213 4,218 4,018 3,741 3,746
Shawnee Mission, KS
Crescent Gardens 100% 100% 99% 100% 100% 4,980 4,873 4,759 4,665 4,539
Wilson, NC
De Angelis Manor 100% 100% 100% 100% 100% 8,838 8,335 8,193 7,843 7,431
West Warwick, RI
Fairway Park Apt. 94% 99% 98% 97% 90% 8,758 8,581 8,286 8,014 7,844
Naperville, IL
Forest Park Apt. 99% 99% 100% 100% 98% 4,028 4,032 3,866 3,782 3,686
New Orleans, LA
Garden Court 75% 75% 85% 92% 89% 4,284 4,476 5,101 4,819 5,040
Springfield, IL
Glenridge Gardens 86% 93% 91% 97% 93% 4,324 4,229 4,503 4,802 4,417
Augusta, ME
Hale Ohana 93% 97% 67% 67% 97% 8,837 8,290 6,123 6,475 6,463
Koloa, Kauai, HI
</TABLE>
I-6
<PAGE>
SCHEDULE OF PROJECTS OWNED BY LOCAL PARTNERSHIPS
IN WHICH CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
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 1995 1994 1993 1992 1991 1995 1994 1993 1992 1991
- -------------------- ---- ---- ---- ---- ---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Harborview 99% 100% 99% 100% 100% $ 8,411 $ 7,791 $ 7,269 $ 6,148 $ 5,594
St. Croix, Virgin Islands
Highland Village 99% 100% 98% 100% 100% 5,313 5,245 5,127 5,199 5,212
Ware, MA
Holiday Village 99% 95% 100% 100% 100% 3,414 3,282 3,064 2,929 2,936
Park City, UT
Hometown Villages 91% 95% 92% 97% 96% 5,601 5,608 6,891 5,376 5,290
Various cities, WI
Jewish Federation 100% 97% 99% 100% 100% 8,929 8,813 8,606 8,344 7,996
Cherry Hill, NJ
Lakes of Northdale 89% 95% 94% 92% 91% $ 7,486 $ 7,151 $ 6,758 $ 6,676 6,725
Tampa, FL
Liberty Tower 99% 96% 97% 100% 98% 8,270 8,077 7,871 7,665 7,441
California, PA
Madison Square 98% 97% 98% 98% 99% 7,170 7,115 7,105 6,981 6,798
Grand Rapids, MI
Mary Allen West Tower 100% 100% 100% 100% 99% 6,170 6,142 6,092 6,011 5,878
Galesburg, IL
Matthew XXV 100% 100% 100% 100% 100% 8,724 8,874 8,512 8,196 7,738
Warwick, RI
Northridge Park 91% 94% 89% 93% 95% 7,576 7,244 7,602 7,598 7,389
Salinas, CA
Pilgrim Tower East 100% 100% 100% 100% 100% 8,717 8,661 8,413 8,159 7,736
Pasadena, CA
Pilgrim Tower North 100% 100% 100% 100% 100% 4,663 4,321 3,965 3,880 3,864
Pasadena, CA
Redden Gardens 97% 100% 99% 98% 98% 4,717 4,560 4,434 4,397 4,357
Dover, NH
River Run Apt. 99% 100% 99% 100% 100% 3,687 3,676 3,582 3,536 3,421
Macomb, IL
Riverview Manor 97% 100% 100% 100% 100% 5,639 5,599 5,522 5,235 5,111
Fort Atkinson, WI
</TABLE>
I-7
<PAGE>
SCHEDULE OF PROJECTS OWNED BY LOCAL PARTNERSHIPS
IN WHICH CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
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 1995 1994 1993 1992 1991 1995 1994 1993 1992 1991
- -------------------- ---- ---- ---- ---- ---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Scoville Center 95% 99% 98% 100% 99% $ 5,220 $ 5,131 $ 7,794 $ 4,931 $ 4,698
Beloit, WI
Second Lakewood 96% 95% 92% 97% 95% 8,988 8,688 8,483 8,583 8,215
Schaumburg, IL
Thornwood House 100% 100% 100% 100% 99% 4,665 4,496 4,324 4,170 4,158
University Park, IL
Tradewinds Terrace 95% 99% 97% 95% 97% 4,096 4,095 4,076 3,939 4,145
Traverse City, MI
Valley View 100% 100% 98% 100% 100% 4,071 3,877 3,667 3,526 3,357
Rockford, IL
Valley Vista 94% 90% 100% 98% 98% 4,824 4,742 4,511 4,600 4,337
Syracuse, NY
Village Apt. North 100% 100% 99% 100% 98% 4,388 3,743 3,728 3,400 2,694
Salt Lake City, UT
Walnut Square 99% 99% 100% 100% 100% 3,994 4,020 4,023 4,016 3,711
New Orleans, LA
Wellington Woods 97% 100% 100% 100% 100% 2,854 2,645 2,600 2,563 2,541
Clarkson, NY
Westport Village 98% 97% 97% 98% 96% 4,595 4,406 4,110 3,597 3,841
Freeport, IL
Wollaston Manor 99% 100% 100% 99% 100% 5,791 5,634 5,191 4,641 4,715
Quincy, MA
---- ---- ---- ---- ---- -------- -------- -------- -------- --------
Totals(3) 43 97% 97% 97% 98% 98% $ 5,975 $ 5,822 $ 5,777 $ 5,483 $ 5,316
==== ==== ==== ==== ==== ======== ======== ======== ======== ========
</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 first mortgage loans payable by
the Local Partnerships as of December 31, 1995.
(3) The totals for the percentage of units occupied and the average effective
annual rental per unit are based on a simple average.
I-8
<PAGE>
PART I
-------
ITEM 1. BUSINESS - Continued
--------
For additional information regarding the real estate of Local Partnerships
in which the Partnership has invested, see Part IV, Schedule III - "Real Estate
and Accumulated Depreciation of Local Partnerships in which Capital Realty
Investors-IV Limited Partnership has Invested."
On January 31, 1995, Southgate Apartments Company sold Southgate Apartments
to a non-profit entity. See Part II, Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations and the notes to the
consolidated financial statements for additional information pertaining to the
sale.
On January 5, 1996, the Partnership received $1,000 for a purchase option
on its partnership interest in New Second Lakewood Associates Limited
Partnership. See Part II, Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations and the notes to the consolidated
financial statements for additional information pertaining to the purchase
option of this partnership interest.
On February 6, 1996, Clearfield Hills I Limited Partnership sold Clearfield
Hills I to a non-profit entity. See Part II, Item 7, Management's Discussion
and Analysis of Financial Condition and Results of Operations and the notes to
the consolidated financial statements for additional information pertaining to
the sale.
On February 6, 1996, New Village Apartments North Limited Partnership sold
Village Apartments North to a non-profit entity. See Part II, Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the notes to the consolidated financial statements for additional
information pertaining to the sale.
On February 27, 1996, the local general partner's plan of action regarding
the sale of River Run was approved under the LIHPRHA program. The local general
partner is currently seeking a qualified purchaser for the property. See Part
II, Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations and the notes to the consolidated financial statements for
additional information pertaining to incentives available under the LIHPRHA
program.
ITEM 2. PROPERTIES
----------
Through its ownership of limited partnership interests in Local Partner-
ships, Capital Realty Investors-IV Limited Partnership indirectly holds an
interest in the underlying real estate. See Part I, Item 1 and Schedule III of
Part IV, Item 14 for information pertaining to these properties.
ITEM 3. LEGAL PROCEEDINGS
-----------------
Information concerning potential future legal proceedings is contained in
Part II, Item 7, Management's Discussion and Analysis of Financial Condition and
Results of Operations and Note 6 of the notes to financial statements in Part
IV, Item 14.
I-9
<PAGE>
PART I
-------
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 1995.
I-10
<PAGE>
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP INTERESTS AND
-----------------------------------------------------
RELATED PARTNERSHIP MATTERS
---------------------------
(a) It is not anticipated that there will be any market for resale of
interests in the Partnership. As a result, investors may be unable to
sell or otherwise dispose of their interest in the Partnership.
(b) As of March 11, 1996, there were approximately 7,100 registered
holders of limited partnership interests in the Partnership.
(c) For the year ended December 31, 1995, a cash distribution of $10.14
per unit of Additional Limited Partnership Interest, all of which is a
return of capital on a Generally Accepted Accounting Principles basis,
was paid on April 28, 1995 to investors of record as of January 31,
1995. The distribution was a result of the disposition of Southgate
Apartments. No distributions were declared or paid by the Partnership
during 1994. The Partnership received distributions of $845,622, and
$712,622 from Local Partnerships during 1995 and 1994, respectively.
Some of the Local Partnerships operate under restrictions imposed by
the government agencies which limit the cash return available to the
Partnership.
II-1
<PAGE>
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S PARTNERSHIP INTERESTS AND
-----------------------------------------------------
RELATED PARTNERSHIP MATTERS - Continued
---------------------------
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
<TABLE>
<CAPTION>
For the years ended December 31,
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Share of income (loss) from partnerships $ 245,013 $ (1,399,207) $ (12,883) $ (432,472) $ (1,216,033)
Interest and other income 433,511 359,536 227,959 201,515 326,716
Expenses (15,169,222) (13,949,301) (12,836,439) (11,484,081) (9,291,300)
Share of extraordinary gain from partnership -- -- -- -- 1,973,138
Gain on disposition of investments in
partnerships 3,055,176 -- 2,693,169 -- --
------------ ------------ ------------ ------------ ------------
Net loss $(11,435,522) $(14,988,972) $ (9,928,194) $(11,715,038) $ (8,207,479)
============ ============ ============ ============ ============
Loss allocated to Additional Limited
Partners (97%) $(11,092,457) $(14,539,303) $ (9,630,348) $(11,363,587) $ (7,961,255)
============ ============ ============ ============ ============
Loss per unit of Additional
Limited Partnership Interest based on
73,500 units outstanding $ (150.92) $ (197.81) $ (131.03) $ (154.61) $ (108.32)
============ ============ ============ ============ ============
Cash distribution per unit of
Additional Limited Partnership
Interest based on 73,500 units outstanding $ 10.14 $ -- $ 21.37 $ -- $ --
============ ============ ============ ============ ============
Total assets $ 43,620,768 $ 45,061,364 $ 47,178,378 $ 50,293,562 $ 51,671,228
============ ============ ============ ============ ============
Total remaining amounts due on investments,
including accrued interest on purchase
money notes, net of unamortized discount $111,755,033 $101,039,123 $ 88,122,100 $ 79,785,068 $ 69,538,471
============ ============ ============ ============ ============
</TABLE>
II-2
<PAGE>
PART II
-------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
General
-------
The Partnership has invested, through Local Partnerships, principally in
federal or state government-assisted apartment complexes intended to provide
housing to low and moderate income tenants. In conjunction with such government
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 of 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
ability of the Partnership to share in the appreciated value of the properties.
The acquisition of interests in certain Local Partnerships resulted in
purchase money note obligations of the Partnership. The purchase money notes
are non-recourse obligations of the Partnership which typically mature fifteen
years from the dates of acquisition of the interests in particular Local
Partnerships.
The Managing General Partner has been working to develop a strategy to sell
certain properties by utilizing opportunities presented by federal affordable
housing legislation, favorable financing terms and preservation incentives
available to nonprofit purchasers. The Managing General Partner intends to
utilize part or all of the Partnership's net proceeds (after 50% distribution to
limited partners) received from the sales of properties to fund reserves for
paying at maturity, prepaying or purchasing prior to maturity, at a discount
where possible, currently outstanding purchase money notes. The Managing
General Partner believes that this represents an opportunity to reduce the
Partnership's long-term obligations.
Many of the rental properties owned by the Local Partnerships have
mortgages which are federally insured under Section 236 or Section 221(d)(3) of
the National Housing Act, as amended. These properties may be eligible for sale
or refinancing, subject to numerous requirements, under the Low Income Housing
Preservation and Resident Homeownership Act of 1990 (LIHPRHA). This program may
provide incentives to owners of qualifying multifamily housing who commit to
permanently maintain their properties as low to moderate income housing.
Incentives available under LIHPRHA include selling the property to qualified
buyers or obtaining supplemental financing for the property. As of March 11,
1996, members of Congress were recommending substantial changes to the LIHPRHA
program ranging from the elimination of the program to the redesigning of the
II-3
<PAGE>
PART II
-------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
program. Substantial uncertainty exists as to whether any properties which have
already filed the notice of intent to participate under LIHPRHA will qualify
under a redesigned program, or as to whether the program will continue at all.
Some of the rental properties owned by the Local Partnerships are financed
by state housing agencies. The Managing General Partner has been working to
develop a strategy to sell or refinance certain properties by utilizing programs
developed by these agencies. These programs may include opportunities to sell
the property to a qualifying purchaser who would agree to maintain the property
as low to moderate income housing in perpetuity, or may include opportunities to
refinance the property through supplemental financing. The Managing General
Partner continues to monitor these programs to ascertain whether the properties
would qualify within the parameters of these programs and whether these programs
would provide an appropriate economic benefit to the limited partners of the
Partnership.
Many of the rental properties owned by the Local Partnerships are dependent
on the receipt of housing assistance payments guaranteed by contract under the
Department of Housing and Urban Development (HUD) Section 8 program. The level
of funding for the Section 8 program, and HUD-insured multifamily housing in
general, is dependent upon the continuation of appropriations approved by
Congress for subsidy payments. In the event that the rental subsidy programs
are reduced or phased out, there is no assurance that the rental properties will
be able to maintain the occupancy levels necessary to pay debt service and
operating costs or that the rents necessary to pay debt service and operating
costs will be competitive with rents for comparable units in the rental
properties' market areas. While the Managing General Partner has no reason to
believe that HUD will not honor its obligations under the contracts, some
uncertainty exists in light of the recent Congressional scrutiny of
appropriations for HUD programs.
In 1990, CRI, as Managing General Partner of the Partnership and various
other entities, subcontracted certain property-level asset management functions
for certain properties to Capital Management Strategies, Inc. (CMS). Among
these properties were properties owned by certain of the Local Partnerships in
which the Partnership invested. CMS was formed by Martin C. Schwartzberg, a
nominal general partner of the Partnership and a former stockholder of CRI, when
he cashed out of CRI and its related businesses as of January 1, 1990. Mr.
Schwartzberg agreed not to act as a general partner with respect to any of the
CRI-sponsored partnerships, including this Partnership, and has not done so
since that time. In late 1995, a dispute arose between CRI and CMS over the
funding level of the 1996 contract for CMS. On November 9, 1995, CRI filed a
complaint against CMS to determine the proper amount of fees to be paid in 1996
under the asset management agreement. CMS answered on January 10, 1996, but
asserted no counterclaims.
Thereafter, Mr. Schwartzberg launched a hostile consent solicitation to be
designated as managing general partner of approximately 125 private partnerships
sponsored by CRI. On January 18, 1996, Mr. Schwartzberg and CMS filed a
complaint in the Circuit Court of Montgomery County, Maryland (the Circuit
Court), against CRI and Messrs. Dockser and Willoughby (who are general partners
of the Partnership) alleging, among other things, that CRI and Messrs. Dockser
and Willoughby have breached the asset management agreement pursuant to which
Mr. Schwartzberg's company, CMS, agreed to perform limited functions related to
property-level issues for a portion of CRI's subsidized housing portfolio
II-4
<PAGE>
PART II
-------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
(including some of the properties in which the Partnership invested), by
reducing the proposed budget for 1996. The Partnership is not named as a
defendant in this action. Messrs. Dockser and Willoughby have entered an answer
denying all of Mr. Schwartzberg's claims. Messrs. Dockser and Willoughby have
publicly responded that Mr. Schwartzberg's suit is motivated by his budget
dispute with CRI and personal animosity. On February 6, 1996, CRI terminated
the CMS contract for cause. Mr. Schwartzberg and CMS responded by filing a
motion for injunctive relief in the Circuit Court, asking the court to enjoin
CRI from terminating the contract. In a ruling issued on February 12, 1996, the
Circuit Court, among other things, refused to grant the injunction requested by
CMS. A hearing in this case is scheduled for April 29, 1996. On February 12,
1996, the Circuit Court also issued a memorandum opinion and order enjoining CMS
and Mr. Schwartzberg from disclosing information made confidential under the
asset management agreement.
On February 1, 1996 and February 16, 1996, Mr. Schwartzberg sent letters to
the Partnership requesting investor lists and other forms of investor
information. On February 5, 1996, the Partnership, acting through its managing
general partner, CRI, denied Mr. Schwartzberg's request. On February 20, 1996,
counsel for the Partnership responded to Mr. Schwartzberg's second request,
denying that Mr. Schwartzberg had standing or a proper purpose for requesting
the investor lists. In view of Mr. Schwartzberg's solicitation efforts against
other CRI-sponsored partnerships, CRI anticipates that litigation may arise from
this request.
Financial Condition/Liquidity
-----------------------------
As of December 31, 1995, the Partnership had approximately 7,100 investors,
who subscribed to a total of 73,500 units of limited partnership interests in
the original amount of $73,500,000. As of December 31, 1995, the Partnership
had investments in forty-three Local Partnerships. The Partnership's liquidity,
with unrestricted cash resources of $6,801,118 as of December 31, 1995, 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, 1995, $44,800 of cash was restricted for future interest payments
on one of the purchase money notes. As of March 11, 1996, there were no
material commitments for capital expenditures. Statement of Financial
Accounting Standards No. 107, "Disclosures About Fair Value of Financial
Instruments" (SFAS 107), requires the disclosure of fair value information about
financial instruments for which it is practicable to estimate that value. The
Partnership implemented SFAS 107 in 1995, and has determined that the carrying
amounts of its cash and cash equivalents and restricted cash approximate fair
value.
During 1995, 1994 and 1993 the Partnership received cash distributions of
$845,622, $712,622 and $794,292, respectively, from the Local Partnerships.
As of December 31, 1995, the Partnership's obligations with respect to its
investments in Local Partnerships, in the form of purchase money notes of
$50,785,958 (exclusive of unamortized discount on purchase money notes of
$23,472,463) plus accrued interest of $84,441,538, 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
II-5
<PAGE>
PART II
-------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
loan; or (3) maturity. Purchase money notes in an aggregate principal amount of
$1,370,000 matured in 1994 but have not been paid, as discussed below. Purchase
money notes in an aggregate principal amount of $2,121,850, which matured in
1994, were paid off in February 1996, as discussed below. The remaining
purchase money notes mature from 1997 to 2025. The purchase money note relating
to Southgate Apartments Company (Southgate) totalling $2,767,000 was retired on
January 31, 1995 as a result of the sale of the related property, as discussed
below. The purchase money notes are generally secured by the Partnership's
interest in the respective Local Partnerships. There is no assurance that the
underlying properties will have sufficient appreciation and equity to enable the
Partnership to pay the purchase money notes' principal and accrued interest when
due. If a purchase money note is not paid in accordance with its terms, the
Partnership will either have to renegotiate the terms of repayment or risk
losing its partnership interest in the Local Partnership. The Managing General
Partner is continuing to investigate possible alternatives to reduce the
Partnership's long-term debt obligations. These alternatives include, among
others, retaining the cash available for distribution to meet the purchase money
note requirements, buying out certain purchase money notes at a discounted
price, extending the due dates of certain purchase money notes, or refinancing
the respective properties' underlying debt and using the Partnership's share of
the proceeds to pay off or buy down certain purchase money note obligations.
On May 11, 1992, Southgate filed a plan of action under Title II of the
Emergency Low Income Housing Preservation Act of 1987 to sell the real estate to
a non-profit entity. The sale was completed on January 31, 1995. The sale
price of the property of approximately $9.3 million generated sufficient
proceeds to the Partnership to retire, at a discount, the purchase money note
obligation of the Partnership with respect to such property. The sale provided
proceeds to the Partnership in excess of its investment in the Local
Partnership, and resulted in a net financial statement gain and a net tax gain
in 1995 of $3,055,176 and $6,982,026, respectively. The Partnership distributed
$745,290 (or $10.14 per Additional Limited Partner unit) on April 28, 1995 to
the Additional Limited Partners as return of capital on a Generally Accepted
Accounting Principles basis. The Managing General Partner intends to retain all
of the Partnership's remaining undistributed net sale proceeds for the
repayment, prepayment or purchase of purchase money notes of other Local
Partnerships, as discussed above. The General Partner and/or its affiliates
received net fees for services relating to the sale of $186,512 on February 2,
1995.
On May 22, 1992, Clearfield Hills I Limited Partnership filed a notice of
intent to participate under the LIHPHRA program. The sale of the property was
completed on February 6, 1996. The sale price of the property of approximately
$3.2 million generated sufficient proceeds to the Partnership to retire, at a
discount, the purchase money note obligation of the Partnership with respect to
such property, which matured on October 30, 1994. The sale provided proceeds to
the Partnership in excess of its investment in the Local Partnership, and will
result in a net financial statement gain and a net tax gain in 1996 of
approximately $1.8 million and $2.4 million, respectively. The Managing General
Partner intends to retain all of the Partnership's share of the net sale
proceeds for the repayment, prepayment or purchase of outstanding purchase money
notes of other Local Partnerships, as discussed above. As such, the Managing
General Partner and/or its affiliates received no fees for services relating to
the sale.
II-6
<PAGE>
PART II
-------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
On March 1, 1994, New Village Apartments North filed a notice of intent to
participate under the LIHPHRA program. The sale of the property was completed
on February 6, 1996. The sale price of the property of approximately $2.86
million generated sufficient proceeds to the Partnership to retire, at a
discount, the purchase money note obligation of the Partnership with respect to
such property, which matured on September 27, 1994. The sale provided proceeds
to the Partnership in excess of its investment in the Local Partnership, and
will result in a net financial statement gain and a net tax gain in 1996 of
approximately $2.6 million and $3.3 million, respectively. The Managing General
Partner intends to retain all of the Partnership's share of the net sale
proceeds for the repayment, prepayment or purchase of outstanding purchase money
notes of other Local Partnerships, as discussed above. As such, the Managing
General Partner and/or its affiliates received no fees for services relating to
the sale.
The Partnership defaulted on its purchase money note relating to Holiday
Village Apartments on July 27, 1994 when the note matured and was not paid.
The default amount included principal and accrued interest of $1,370,000 and
$2,862,342, respectively. As of March 11, 1996, principal and accrued interest
totalling $1,370,000 and $3,701,377, respectively, were due. In June 1994, an
offer was made to extend the maturity date of this note to coincide with the
future sale of the property under the LIHPRHA program or refinancing of the
first mortgage. As of March 11, 1996, discussions with the noteholder were
ongoing. There is no assurance, however, that the offer to extend the maturity
date will be accepted. Should the noteholder begin foreclosure proceedings on
the Partnership's interest in the related Local Partnership, the Partnership
intends to vigorously defend any action by the noteholder. However, there is no
assurance that the Partnership will be able to retain its interest in the Local
Partnership. The uncertainty about the continued ownership of the Partnership's
interest in the related Local Partnership does not impact the Partnership's
financial condition because the related purchase money note is nonrecourse and
secured solely by the Partnership's interest in the Local Partnership.
Therefore, should the investment in Holiday Village Apartments not produce
sufficient value to satisfy the related purchase money note, the Partnership's
exposure to loss is limited since the amount of the nonrecourse indebtedness
exceeds the carrying amount of the investment in and advances to the Local
Partnership. Thus, even a complete loss of this investment would not have a
material impact on the operations of the Partnership.
On January 5, 1996, the Managing General Partner received $1,000 for an
option to purchase its limited partner interest in New Second Lakewood
Associates Limited Partnership (Second Lakewood). The sale was dependent on the
purchaser exercising the option by February 15, 1996 and completing the
transaction by March 15, 1996. On March 15, 1996, the option holder requested
an extension from the Managing General Partner of the February 15th and March
15th deadlines to April 15, 1996 and May 15, 1996, respectively. On March 20,
1996, the Managing General Partner agreed to this request and mailed an
amendment to the option holder for signature. As of March 20, 1996, the
Managing General Partner was awaiting the signed amendment as well as an
additional $1,000 in consideration for the option extension. There is no
assurance that the amendment will be signed and returned by the option holder or
that the sale of the limited partner interest will ultimately occur.
On June 30, 1993, the Managing General Partner completed the first step of
a two-step sales process for the sale of the Partnership's interests in the
II-7
<PAGE>
PART II
-------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
Shadley and Countryside Local Partnerships. The first step of the sales process
was the refinancing of the loans on the properties. The second step required
for completion of the sales was to obtain approval from the Illinois Housing
Development Agency and HUD. The Partnership received the required approvals for
the sale of the Partnership's interest in the Shadley and Countryside Local
Partnerships on September 24, 1993 and October 21, 1993, respectively. The net
proceeds to the Partnership of $5,002,990 from the refinancing of the mortgage
loans were received by the Partnership on July 1, 1993. The Partnership's
purchase money note obligations, aggregating $2,385,000 plus accrued interest,
relating to the two Local Partnerships were retired with a portion of the net
proceeds. The sales resulted in an aggregate net financial statement gain of
$2,693,169 and a net tax gain of approximately $6 million. The Partnership made
a distribution of $1,570,695 (or $21.37 per unit) to the Additional Limited
Partners on October 29, 1993 for the sale of the Partnership's interest in the
Shadley and Countryside Local Partnerships. Any remaining undistributed net
sales proceeds is being retained by the Partnership, as discussed above. The
Managing General Partner or its affiliates received net fees for services
relating to the sale of the Partnership's interest in the Shadley and
Countryside Local Partnerships of $105,767 and $187,552 on October 9, 1993 and
October 22, 1993, respectively.
SFAS 107 requires the disclosure of fair value information about financial
instruments for which it is practicable to estimate that value. 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 to financial instruments, (2) the
variable nature of purchase money note interest payments as a result of
fluctuating cash flow distributions received from the related Local Partnership,
and (3) the excessive costs associated with an independent appraisal of the
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 1995 and 1994, the receipt of distributions from Local Partnerships and the
release of restricted cash equivalents were adequate to support operating cash
requirements.
Results of Operations
---------------------
The Partnership's net loss decreased in 1995 from 1994 primarily due to the
recognition of gain on the disposition of Southgate in 1995, as previously
discussed. Contributing to the decrease in net loss was an increase in share of
income from Local Partnerships primarily as a result of one property's
accumulated losses exceeding the Partnership's basis in the related investment
in Local Partnership during 1995. The Partnership does not record losses from
the Local Partnerships in excess of the Partnership's investment in the
respective Local Partnerships, as discussed below. Contributing to the increase
in share of income from Local Partnerships was the repayment in 1995 of the
Partnership's advance to the same Local Partnership discussed above, which was
recorded by the Partnership as income from Local Partnerships since the
Partnership's investment in the particular Local Partnership had been reduced to
zero. Also contributing to the increase in share of income from Local
Partnerships was a decrease in interest expense at one property, an increase in
rental revenues at two properties, and a decrease in operating expenses at two
II-8
<PAGE>
PART II
-------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
properties. Also contributing to the decrease in the Partnership's net loss was
an increase in interest and other income as a result of higher cash balances and
increased yields on investments. Partially offsetting the decrease in net loss
was an increase in interest expense as a result of the amortization of the
discount on the purchase money notes, as discussed below.
The Partnership's net loss increased in 1994 from 1993 primarily due to the
recognition of gain on the disposition of Shadley and Countryside in 1993, as
previously discussed. Contributing to the increase in net loss was an increase
in interest expense as a result of the amortization of the discount on the
purchase money notes, as discussed below. Also contributing to the increase in
net loss was an increase in the share of loss from Local Partnerships, primarily
due to a decrease in rental revenues at certain properties relating to
retroactive rent adjustments received in 1993, as well as the sale of two income
producing properties in the second quarter of 1993. Partially offsetting the
increase in net loss was in increase in interest and other income, primarily due
to the receipt in 1994 of remaining cash flow distributions and sales proceeds
from properties sold in 1993. Also partially offsetting the increase in net
loss was a decrease in professional fees primarily due to the payment of 1992
expenses in 1993 and fees incurred in 1993 relating to the defense of the
lawsuit that was settled in March 1994. The increase in net loss was also
partially offset by a decrease in proxy solicitation costs as well as a decrease
in general and administrative expenses principally relating to the payment of
1992 expenses in 1993 and a reduction in annual report printing costs.
The purchase money notes originated from 1984 through 1985. When they were
issued, the market interest rate was approximately 15%, while the stated
interest rates ranged from 9 to 12%. The notes were discounted as required by
Generally Accepted Accounting Principles, and a simple/compound method was used
at the stated interest rate for tax purposes and the compound method at the
market interest rate was used for book purposes. As the book interest is being
compounded, the interest expense for book purposes will eventually surpass the
interest expense for tax purposes, thereby reducing the discount and increasing
the interest expense. In fiscal year 1995, all properties with purchase money
notes had book interest which exceeded the tax interest. This increase in
interest expense and the resulting reduction in the discount is expected to
increase in future years.
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,
1995, 1994 and 1993 did not include losses of $1,262,820, $1,071,631 and
$1,585,460, respectively. The Partnership's net loss recognized from the Local
Partnerships is generally expected to decrease in subsequent years as the
Partnership's investments in the Local Partnership are reduced to zero.
Accordingly, excludable losses are generally expected to increase.
Distributions of $28,777, $68,981 and $68,952 received from three, three and
four Local Partnerships during 1995, 1994 and 1993, respectively, were offset
against the respective years' recorded losses because these amounts were in
excess of the Partnership's investment.
On September 30, 1995, the local general partner of Northridge Park Limited
Partnership (Northridge Park) restructured its existing first mortgage. In
II-9
<PAGE>
PART II
-------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
conjunction with the restructuring, the Managing General Partner restructured
the related purchase money note, extending the maturity from July 31, 1999 to
October 1, 2025. In addition, the interest rate on the purchase money note was
lowered from 9% to 8.17%. The new maturity date and interest rate of the
purchase money note are the same as the terms of Northridge Park's restructured
mortgage.
The letter of credit related to the tax-exempt bonds on Lakes of Northdale,
which originally matured in June 1995, had been extended to February 15, 1996.
The letter of credit fee increased from its previous level of 1% per annum to a
maximum of 4% per annum in October 1995. The Managing General Partner of Lakes
of Northdale is currently negotiating for the letter of credit issuer to
purchase the existing tax-exempt bonds issued by the Florida Housing Finance
Agency and re-market these bonds in June 1996. There is no assurance that Lakes
of Northdale will be successful in its efforts. If new financing is not
obtained, the letter of credit issuer could begin foreclosure proceedings on the
Local Partnership's property. The uncertainty about the Local Partnership's
continued ownership of the property does not impact the Partnership's financial
condition because the purchase money notes related to Lakes of Northdale are
nonrecourse and secured solely by the Partnership's interest in the Local
Partnership. Therefore, should the investment in Lakes of Northdale not produce
sufficient value to satisfy the related purchase money notes, the Partnership's
exposure to loss is limited since the amount of the nonrecourse indebtedness
exceeds the carrying amount of the investment in and advances to the Local
Partnership. Thus, even a complete loss of this investment would not have a
material impact on the operations of the Partnership.
In 1989, Second Lakewood was experiencing rent losses due to units being
taken off the market because of roof leakage. The Partnership advanced a total
of $750,000 during 1990 to fund roof replacement in order to maintain the
marketability and income of the property. The loan bears interest at 11% and is
to be repaid from the property's cash flow. As of December 31, 1995 and 1994,
the outstanding loan to Second Lakewood totalled $224,543 and $441,500,
respectively. Accrued interest on the loan was $617 and $67,811 as of December
31, 1995 and 1994, respectively. A loan payment of $67,139 was received by the
Partnership on January 16, 1996, with $65,424 and $1,715 being applied to
principal and accrued interest, respectively. HUD agreed to waive the 1990
first mortgage debt-service payments so that up to $360,000 of the property's
cash flow could be used to repay the loan. HUD granted a reinstatement (that
is, the loan is no longer in default) of the mortgage loan as a result of the
1990 debt-service deferral, and the property resumed its original debt-service
payments effective April 1, 1994. In September 1995, HUD sold the mortgage of
Second Lakewood to a new mortgagee. The new mortgagee is now servicing the loan
and Second Lakewood is no longer subject to HUD regulatory requirements. During
the second quarter of 1993, Second Lakewood experienced substantial fire damage
to 19 of a total of 219 units, resulting in four units being temporarily taken
off the market. In addition, the brick facade of the building was significantly
damaged. The fire was caused by an electrical transformer explosion. The
property's insurance carrier covered the cost of all repairs and rental losses
in excess of the $1,000 deductible which totalled $255,116. Repairs were
completed during the third quarter of 1994.
Garden Court Apartments, located in Springfield, Illinois, received a
$330,000 grant from HUD to make certain improvements to the property. The local
general partner of Garden Court Apartments addressed security issues as part of
II-10
<PAGE>
PART II
-------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
these improvements in an effort to improve occupancy. Improvements made under
this grant were completed in the fourth quarter of 1995.
The first mortgage loan on Clearfield Hills II originally matured on
October 2, 1995. The existing lender granted an extension of this loan to
October 31, 1995. The Local Partnership refinanced the mortgage with a new
lender on October 13, 1995. The new first mortgage principal balance of
$1,513,000 carries an interest rate of 8.32% per annum. From June 26, 1995 to
October 9, 1995, the Partnership advanced a total of $49,260 to Clearfield Hills
II for closing costs. On October 13, 1995, the Partnership received $45,310
from the refinancing proceeds as partial reimbursement of these advances. The
remaining $3,950 was repaid to the Partnership on December 20, 1995 upon the
release of certain escrows related to the original mortgage.
The local general partners of the following properties have each filed a
notice of intent to participate under the LIHPRHA program:
<TABLE>
<CAPTION>
Property Date of Filing
------------------- ------------------
<S> <C>
Valley Vista November 4, 1992
River Run March 15, 1993
Cedar Point November 23, 1993
Thornwood House November 23, 1993
Forest Park May 23, 1994
Walnut Square May 23, 1994
Redden Gardens December 23, 1994
Holiday Village January 9, 1995
Cottonwood Park January 23, 1995
</TABLE>
On February 27, 1996, the local general partner's plan of action regarding
the sale of River Run was approved under the LIHPRHA program. The local general
partner is currently seeking a qualified purchaser for the property. Incentives
available under the LIHPRHA program are discussed above in the General section.
There is no assurance that a sale or supplemental financing of River Run or any
other of the above properties will occur.
In 1994, Natick Associates (DeAngeles Manor) and Diakonia Associates
(Matthew XXV) were negotiating sales for their respective properties. As a
result of recent Congressional scrutiny of the HUD Section 8 program, sales
negotiations for these properties have been stalled. There is no assurance that
a sale of either of these properties will occur.
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 real property
investments were purchased. Future inflation could allow for appreciated values
II-11
<PAGE>
PART II
-------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
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
Partnership's remaining forty-three properties for the five years ended December
31, 1995. Combined rental revenue amounts for years prior to 1995 have been
adjusted to reflect property sales in 1995 and 1993, as discussed above.
II-12
<PAGE>
PART II
-------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
<TABLE>
<CAPTION>
For the years ended December 31,
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Combined Rental
Revenue $40,960,669 $38,663,701 $38,599,191 $36,665,864 $35,512,484
Annual Percentage
Increase 5.9% 0.2% 5.3% 3.2%
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
The information required by this item is contained in Part IV.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
None.
II-13
<PAGE>
PART III
--------
ITEM 10. 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, 59, 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 complexes. 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 of CRIIMI MAE Inc., CRIIMI, Inc. and CRI Liquidating REIT, Inc.
H. William Willoughby, 49, President, Secretary and a Director of CRI since
January 1990 and 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 & Company. He holds a Juris Doctorate 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., CRIIMI, Inc. and CRI Liquidating REIT,
Inc.
Richard J. Palmer, 44, Senior Vice President-Chief Financial Officer. Prior to
joining CRI in 1983 as Director of Tax Policy, he was a Tax Manager at Grant
Thornton (formerly Alexander Grant & Company). He also served in the Tax and
Audit Departments of Peat, Marwick, Main and Company (formerly Peat, Marwick,
Mitchell and Company) prior to his seven years at Grant Thornton. He holds a
Bachelor of Business Administration degree from the Florida Atlantic University
and is also a Certified Public Accountant.
III-1
<PAGE>
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - Continued
--------------------------------------------------
Ronald W. Thompson, 49, 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.
Susan R. Campbell, 37, Senior Vice President-CRI Realty Services. 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, 40, 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 Doctorate 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 11. EXECUTIVE COMPENSATION
----------------------
(a), (b), (c) and (d)
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 included in Notes 3 and 4 to the financial statements contained
in Part IV, Item 14.
Additionally, the General Partners may receive an annual distribution from
the Partnership if there is cash available for distribution, as defined in
the Partnership Agreement.
The Managing General Partner is also entitled to the following payments:
(1) Annual incentive management fee for managing the affairs and business
of the Partnership in an amount not to exceed .25% of invested assets,
including the Partnership's allocable share of the mortgages, payable
first, in an annual amount equal to $375,000; and second, after
distributions to investors in the amount of 1% of the gross proceeds
III-2
<PAGE>
PART III
--------
ITEM 11. EXECUTIVE COMPENSATION - Continued
----------------------
of the offering, the balance of such .25% of invested assets. Any flex
subsidy mortgage loans obtained by the local managing general partner
of the Local Partnerships will not be included as part of the assets
upon which the Managing General Partner's incentive management fee is
calculated. The annual incentive management fee amounted to $375,000
for each of the years ended December 31, 1995, 1994 and 1993.
(2) 12% of sale and refinancing proceeds remaining after the limited
partners have received a return of all their capital contributions,
adjusted as provided in the Partnership Agreement, and the General
Partners have received the property disposition fees described below.
The General Partners may also receive a return of their capital
contributions and repayment of any loans made to the Partnership. No
sale or refinancing proceeds were paid to the General Partners during
the years ended December 31, 1995, 1994 and 1993.
(3) 1% of the aggregate selling prices, including any amounts previously
unpaid upon prior sales of apartment complexes, payable after the
limited partners have received a return of all their capital
contributions, adjusted as provided in the Partnership Agreement.
This amount and any other commissions or fees payable upon the sale of
apartment complexes shall not in the aggregate exceed the lesser of
the competitive rate or 6% of the sales price of the apartment
complexes. No such amounts were paid to the General Partners during
the years ended December 31, 1995, 1994 and 1993.
(4) In addition, 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.
In February 1995, the Managing General Partner and/or its affiliates
received net fees for services totalling $186,512 relating to the sale
of the Southgate property. No such fees were paid to the Managing
General Partner and/or its affiliates during the year ending December
31, 1994. During the year ended December 31, 1993, the Managing
General Partner and/or its affiliates received fees totalling $293,319
relating to the sale of the Partnership's interest in the Shadley and
Countryside Local Partnerships. No fees were paid to the Managing
General Partner and/or its affiliates for services performed in
connection with the 1996 sales of Clearfield Hills I and New Village
Apartments North.
III-3
<PAGE>
PART III
--------
ITEM 11. EXECUTIVE COMPENSATION - Continued
----------------------
(e) Termination of employment and change in control arrangements.
None.
ITEM 12. 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 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, 1995.
(b) Security ownership of management.
The following table sets forth certain information concerning all
units beneficially owned, as of December 31, 1995, by each director
and by all directors and officers as a group of the Managing General
Partner of the Partnership.
<TABLE>
<CAPTION>
Name of Amount and Nature % of total
Beneficial Owner of Beneficial Ownership Units issued
---------------- ----------------------- ------------
<S> <C> <C>
William B. Dockser None 0%
H. William Willoughby None 0%
All Directors and Officers
as a Group (6 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 13. 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 11 of this report, which
contains a discussion of the fees and other compensation paid or
III-4
<PAGE>
PART III
--------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Continued
----------------------------------------------
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 13(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
13(a).
(c) Indebtedness of management.
None.
(d) Transactions with promoters.
Not applicable.
III-5
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
------------------------------------------------------
FORM 8-K
--------
(a) 1. Financial Statements Page
-------------------- ----
Report of Independent Certified Public
Accountants - Capital Realty Investors-IV
Limited Partnership IV-4
Reports of Independent Certified Public
Accountants - Local Partnerships in which
Capital Realty Investors-IV Limited
Partnership has invested IV-5
Consolidated Balance Sheets as of December 31,
1995 and 1994 IV-6
Consolidated Statements of Operations for the
years ended December 31, 1995, 1994 and IV-7
1993
Consolidated Statement of Changes in Partners'
Deficit for the years ended
December 31, 1995, 1994 and 1993 IV-8
Consolidated Statements of Cash Flows for
the years ended December 31, 1995, 1994
and 1993 IV-9
Notes to Consolidated Financial Statements IV-10
(a) 2. Financial Statement Schedules
-----------------------------
Included in Part IV of this report are the
following schedules for the year ended
December 31, 1995, which are applicable to
the Local Partnerships in which Capital Realty
Investors-IV Limited Partnership has invested:
Report of Independent Certified Public
Accountants on Financial Statement Schedule IV-30
Schedule III - Real Estate and Accumulated
Depreciation IV-31
The remaining schedules are omitted because the required
information is included in the financial statements and notes
thereto or they are not applicable or not required.
IV-1
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
------------------------------------------------------
FORM 8-K - Continued
--------
(a) 3. Exhibits (listed according to the number assigned in the table in
Item 601 of Regulation S-K).
Exhibit No. 3 - Articles of Incorporation and bylaws.
a. Certificate of Limited Partnership of Capital Realty
Investors-IV Limited Partnership. (Incorporated by
reference from Exhibit 3 to Registrant's Registration
Statement on Form S-11, as amended, dated June 7, 1984.)
Exhibit No. 4 - Instruments defining the rights of security
holders, including indentures.
a. Limited Partnership Agreement of Capital Realty Investors-IV
Limited Partnership. (Incorporated by reference from
Exhibit 4 to Registrant's Registration Statement on Form
S-11, as amended, dated June 7, 1984.)
Exhibit No. 10 - Material Contracts
a. Management Services Agreement between CRI and Capital Realty
Investors-IV Limited Partnership. (Incorporated by
reference from Exhibit No. 10(b) to the Registrant's
Registration Statement on Form S-11, as amended, June 7,
1984.)
Exhibit No. 27 - Financial Data Schedule
Exhibit No. 28 - Other Exhibits
a. Prospectus of the Partnership, dated June 12, 1985
(Incorporated by reference to the Registrant's Registration
Statement on Form S-11, as amended, dated June 7, 1984).
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended
December 31, 1995.
(c) Exhibits
--------
None.
(d) Financial Statement Schedules
-----------------------------
See Item (a)2, above.
IV-2
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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.
Capital Realty Investors-IV
Limited Partnership
By: C.R.I., Inc.
General Partner
March 28, 1996 /s/ William B. Dockser
- ------------------- ------------------------------------
DATE William B. Dockser, Director
Chairman of the Board,
Treasurer and Principal
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, 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 28, 1996 /s/ H. William Willoughby
- ------------------- ------------------------------------
DATE H. William Willoughby
Director, President and Secretary
March 28, 1996 /s/ Richard J. Palmer
- ------------------- ------------------------------------
DATE Richard J. Palmer
Senior Vice President,
Chief Financial Officer,
Principal Financial and
Principal Accounting Officer
IV-3
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
To the Partners
Capital Realty Investors-IV Limited Partnership
We have audited the accompanying consolidated balance sheets of Capital
Realty Investors-IV Limited Partnership as of December 31, 1995 and 1994 and the
related consolidated statements of operations, changes in partners' deficit, and
cash flows for the years ended December 31, 1995, 1994 and 1993. 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 audit. We did not audit the financial statements for thirty-nine, forty
and forty of the Local Partnerships for the years ended December 31, 1995, 1994
and 1993, respectively, which are accounted for as described in Note 1d. The
financial statements of these Local Partnerships were audited by other auditors
whose reports 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 on 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 consolidated financial position of Capital Realty Investors-IV
Limited Partnership as of December 31, 1995 and 1994, and the consolidated
results of its operations, changes in partners' deficit and cash flows for the
years ended December 31, 1995, 1994 and 1993, in conformity with generally
accepted accounting principles.
Grant Thornton LLP
Vienna, VA
March 11, 1996 (except for Note 2a., as to which the date is March 20,
1996)
IV-4
<PAGE>
REPORTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS -
LOCAL PARTNERSHIPS IN WHICH
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
HAS INVESTED*
* The reports of independent certified public accountants - Local
Partnerships in which Capital Realty Investors-IV Limited Partnership has
invested were filed in paper format under Form SE on March 26, 1996, in
accordance with the Securities and Exchange Commission's continuing
hardship exemption granted December 21, 1995.
IV-5
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
ASSETS
</TABLE>
<TABLE>
<CAPTION>
December 31,
1995 1994
------------- -------------
<S> <C> <C>
Investments in and advances to partnerships $ 33,458,291 $ 35,666,562
Investment in partnerships held for sale 1,479,864 1,872,088
Cash and cash equivalents 6,801,118 5,435,555
Restricted cash 44,800 114,200
Acquisition fees, principally paid to related parties, net
of accumulated amortization of $365,275 and $344,501,
respectively 941,910 1,008,972
Property purchase costs, net of accumulated amortization
of $348,023 and $332,102, respectively 880,553 953,982
Other assets 14,232 10,005
------------- -------------
Total assets $ 43,620,768 $ 45,061,364
============= =============
LIABILITIES AND PARTNERS' DEFICIT
Due on investments in partnerships $ 27,313,495 $ 24,890,860
Accrued interest payable 84,441,538 76,148,263
Accounts payable and accrued expenses 116,689 92,383
------------- -------------
Total liabilities 111,871,722 101,131,506
------------- -------------
Commitments and contingencies
Partners' capital (deficit):
Capital paid-in:
General Partners 2,000 2,000
Limited Partners 73,501,500 73,501,500
------------- -------------
73,503,500 73,503,500
Less:
Accumulated distributions to partners (3,452,583) (2,707,293)
Offering costs (7,562,894) (7,562,894)
Accumulated losses (130,738,977) (119,303,455)
------------- -------------
Total partners' deficit (68,250,954) (56,070,142)
------------- -------------
Total liabilities and partners' deficit $ 43,620,768 $ 45,061,364
============= =============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
IV-6
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the years ended December 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Share of income (loss) from partnerships $ 245,013 $ (1,399,207) $ (12,883)
------------ ------------ ------------
Other revenue and expenses:
Revenue
Interest and other income 433,511 359,536 227,959
------------ ------------ ------------
Expenses
Interest 14,418,899 13,238,386 11,893,187
Management fee 375,000 375,000 375,000
Professional fees 101,361 117,503 224,175
General and administrative 207,778 148,861 196,373
Amortization 66,184 69,551 68,693
Proxy solicitation -- -- 79,011
------------ ------------ ------------
15,169,222 13,949,301 12,836,439
------------ ------------ ------------
Total other revenue and expenses (14,735,711) (13,589,765) (12,608,480)
------------ ------------ ------------
Loss before gain on disposition
of investments in partnerships (14,490,698) (14,988,972) (12,621,363)
Gain on disposition of investments in
partnerships 3,055,176 -- 2,693,169
------------ ------------ ------------
Net loss $(11,435,522) $(14,988,972) $ (9,928,194)
============ ============ ============
Loss allocated to General Partners (1.51%) $ (172,676) $ (226,333) $ (149,916)
============ ============ ============
Loss allocated to Initial and Special Limited
Partners (1.49%) $ (170,389) $ (223,336) $ (147,930)
============ ============ ============
Loss allocated to Additional Limited
Partners (97%) $(11,092,457) $(14,539,303) $ (9,630,348)
============ ============ ============
Loss per unit of Additional Limited Partnership
Interest based on 73,500 units outstanding $ (150.92) $ (197.81) $ (131.03)
============ ============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
IV-7
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
For the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Initial and
Special Additional
General Limited Limited
Partners Partners Partners Total
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Partners' deficit,
January 1, 1993 $(1,440,396) $(1,421,790) $(26,720,095) $(29,582,281)
Distribution of $21.37
per Additional Limited
Partnership Interest -- -- (1,570,695) (1,570,695)
Net loss (149,916) (147,930) (9,630,348) (9,928,194)
----------- ----------- ------------ ------------
Partners' deficit,
December 31, 1993 (1,590,312) (1,569,720) (37,921,138) (41,081,170)
Net loss (226,333) (223,336) (14,539,303) (14,988,972)
----------- ----------- ------------ ------------
Partners' deficit,
December 31, 1994 (1,816,645) (1,793,056) (52,460,441) (56,070,142)
Distribution of $10.14
per Additional Limited
Partnership Interest -- -- (745,290) (745,290)
Net loss (172,676) (170,389) (11,092,457) (11,435,522)
----------- ----------- ------------ ------------
Partners' deficit,
December 31, 1995 $(1,989,321) $(1,963,445) $(64,298,188) $(68,250,954)
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
IV-8
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(11,435,522) $(14,988,972) $ (9,928,194)
Adjustments to reconcile net loss to net cash used
in operating activities:
Share of (income) loss from partnerships (245,013) 1,399,207 12,883
Payment of purchase money note interest (342,518) (346,806) (361,924)
Decrease (increase) in accrued interest receivable
on advances to partnerships 67,192 (48,565) (158,999)
Amortization of discount on purchase money notes 3,255,277 2,784,342 1,959,146
Amortization of deferred costs 66,184 69,551 68,693
Gain on disposition of investment in
partnerships (3,055,176) -- (2,693,169)
Payment of disposition fees -- -- (293,319)
Changes in assets and liabilities:
(Increase) decrease in other assets (4,227) (2,068) 16,156
Increase in accrued interest payable 11,163,622 10,454,046 9,990,053
Increase (decrease) in accounts payable 24,306 (45,065) 46,673
------------ ------------ ------------
Net cash used in operating activities (505,875) (724,330) (1,342,001)
------------ ------------ ------------
Cash flows from investing activities:
Receipt of distributions from partnerships 845,622 712,622 794,292
Payment to purchase money note sinking fund (5,600) -- (5,600)
Release of restricted cash equivalents 75,000 67,225 --
Repayment of advances to partnerships 216,958 61,756 43,069
Sale of short-term investments -- -- 1,800,000
Net proceeds from disposition of investment
in partnership 1,495,721 -- 5,002,990
------------ ------------ ------------
Net cash provided by investing activities 2,627,701 841,603 7,634,751
------------ ------------ ------------
Cash flows from financing:
Payment of purchase money note principal (10,973) -- --
Distribution to Additional Limited Partners (745,290) -- (1,570,695)
Pay-off of purchase money note -- -- (1,500,000)
------------ ------------ ------------
Net cash used in financing activities (756,263) -- (3,070,695)
------------ ------------ ------------
Net increase in cash and cash equivalents 1,365,563 117,273 3,222,055
Cash and cash equivalents, beginning of year 5,435,555 5,318,282 2,096,227
------------ ------------ ------------
Cash and cash equivalents, end of year $ 6,801,118 $ 5,435,555 $ 5,318,282
============ ============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
IV-9
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
------------
Capital Realty Investors-IV Limited Partnership (the Partnership) was
formed under the Maryland Revised Uniform Limited Partnership Act on
December 7, 1983 and shall continue until December 31, 2038 unless sooner
dissolved in accordance with the Partnership Agreement. The Partnership
was formed to invest in real estate by acquiring and holding a limited
partnership interest in limited partnerships (Local Partnerships) which own
and operate federal or state government-assisted or conventionally financed
apartment complexes located throughout the United States, which provide
housing principally to the elderly and 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, and current and former shareholders of
CRI. The Initial Limited Partner of the Partnership is Rockville Pike
Associates Limited Partnership-IV, a limited partnership which includes
certain officers and former employees of CRI or its affiliates. The
Special Limited Partner of the Partnership is Two Broadway Associates-III,
a limited partnership comprised of an affiliate and employees of Merrill
Lynch, Pierce, Fenner and Smith, Incorporated.
The Partnership sold 73,500 units at $1,000 per unit of Additional
Limited Partnership Interest through a public offering. The offering
period was terminated on August 31, 1984.
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. Principles of consolidation
---------------------------
These financial statements include the accounts of three intermediary
limited partnerships which have invested in three Local Partnerships which
own and operate government-assisted or conventionally financed apartment
complexes.
d. 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, 1995 and 1994, the Partnership's share of cumulative losses
of ten and eleven, respectively, of the Local Partnerships exceeds the
amount of the Partnership's investments in and advances to those Local
Partnerships by $14,737,878 and $13,617,817, respectively. Since the
Partnership has no further obligation to advance funds or provide financing
IV-10
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
to these Local Partnerships, the excess losses have not been reflected in
the accompanying consolidated financial statements. As of December 31,
1995 and 1994, cumulative cash distributions of approximately $215,048 and
$186,271, respectively, have been received from 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.
e. Fair value of financial instruments
-----------------------------------
Statement of Financial Accounting Standards No. 107, "Disclosures
About Fair Value of Financial Instruments" (SFAS 107), requires the
disclosure of fair value information about financial instruments for which
it is practicable to estimate that value. The Partnership implemented SFAS
107 in 1995.
f. 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. The
Partnership has determined that the carrying amount of its cash and cash
equivalents approximates fair value.
g. Restricted cash
---------------
Restricted cash consists of cash restricted for future interest
payments on one of the purchase money notes. The Partnership has
determined that the carrying amount of its restricted cash approximates
fair value.
h. Offering costs
--------------
The Partnership incurred certain costs in connection with the offering
and selling of limited partnership interests. Such costs were recorded as
a reduction of partners' capital when incurred.
IV-11
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
i. Income taxes
------------
For federal and state income tax purposes, each partner reports on his
personal income tax return his 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 consolidated financial statements.
j. 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 revenues and expenses during the
reporting period. Actual results could differ from those estimates.
k. Asset held for sale
-------------------
On February 6, 1996, the local general partners of Clearfield Hills I
Limited Partnership and New Village Apartments North sold their respective
properties to non-profit entities. Accordingly, the Partnership's
investments in these Local Partnerships were classified as investments held
for sale on the consolidated balance sheet as of December 31, 1995. On
January 31, 1995, the local general partners of Southgate Apartments
Company sold the property to a non-profit entity. Accordingly, the
Partnership's investment in this Local Partnership was classified as an
investment held for sale on the consolidated balance sheet as of December
31, 1994. Assets held for sale are not recorded in excess of their
estimated net realizable value.
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS
a. Due on investments in partnerships
----------------------------------
As of December 31, 1995 and 1994, the Partnership had limited
partnership interests in forty-three and forty-four limited partnerships,
respectively, which were organized to develop, construct, own, maintain and
operate rental apartment complexes 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 at
December 31, 1995 and 1994 are as follows:
IV-12
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Purchase money notes due:
1994 $ 3,491,850 $ 3,491,850
1997 1,330,000 1,330,000
1999 43,299,108 46,495,231
2000 2,165,000 2,165,000
Thereafter 500,000 --
Less unamortized discount (23,472,463) (28,591,221)
------------ ------------
$ 27,313,495 $ 24,890,860
============ ============
</TABLE>
The purchase money notes have stated interest rates ranging from 9% to
12.3%, certain of which are compounded annually. Unamortized discounts are
based upon imputed interest at 15% to reflect market interest rates which
prevailed when the notes were issued. The resulting discount has been
recorded by the Partnership and is being amortized to interest expense over
the life of the respective purchase money notes using the effective
interest method. 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 $1,370,000 matured in 1994 but have not been paid, as
discussed below. Purchase money notes in an aggregate principal amount of
$2,121,850, which matured in 1994, were paid off in February 1996, as
discussed below. The remaining purchase money notes mature from 1997 to
2025. The purchase money note relating to Southgate Apartments Company
(Southgate) totalling $2,767,000 was retired on January 31, 1995 as a
result of the sale of the related property, as discussed below. The
purchase money notes are generally secured by the Partnership's interest in
the respective Local Partnerships. There is no assurance that the
underlying properties will have sufficient appreciation and equity to
enable the Partnership to pay the purchase money notes' principal and
accrued interest when due. If a purchase money note is not paid in
accordance with its terms, the Partnership will either have to renegotiate
the terms of repayment or risk losing its partnership interest in the Local
Partnership. The Managing General Partner is continuing to investigate
possible alternatives to reduce the Partnership's long-term debt
obligations. These alternatives include, among others, retaining the cash
available for distribution to meet the purchase money note requirements,
buying out certain purchase money notes at a discounted price, extending
the due dates of certain purchase money notes, or refinancing the
respective properties' underlying debt and using the Partnership's share of
the proceeds to pay off or buy down certain purchase money note
obligations.
Interest expense on the Partnership's purchase money notes for the
years ended December 31, 1995, 1994 and 1993 was $14,418,899, $13,238,386
and $11,893,187, respectively. The accrued interest on the purchase money
notes of $84,441,538 and $76,148,263 as of December 31, 1995 and 1994,
respectively, is due on the respective maturity dates of the purchase money
IV-13
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
notes or earlier, if the Local Partnerships have distributable net cash
flow, as defined in the relevant Local Partnership agreements.
On May 11, 1992, Southgate filed a plan of action under Title II of
the Emergency Low Income Housing Preservation Act of 1987 to sell the real
estate to a non-profit entity. The sale was completed on January 31, 1995.
The sale price of the property of approximately $9.3 million generated
sufficient proceeds to the Partnership to retire, at a discount, the
purchase money note obligation of the Partnership with respect to such
property. The sale provided proceeds to the Partnership in excess of its
investment in the Local Partnership, and resulted in a net financial
statement gain and a net tax gain in 1995 of $3,055,176 and $6,982,026,
respectively. The Partnership distributed $745,290 (or $10.14 per
Additional Limited Partner unit) on April 28, 1995 to the Additional
Limited Partners as return of capital on a Generally Accepted Accounting
Principles basis. The Managing General Partner intends to retain all of
the Partnership's remaining undistributed net sale proceeds for the
repayment, prepayment or purchase of purchase money notes of other Local
Partnerships, as discussed above. The General Partner and/or its
affiliates received net fees for services relating to the sale of $186,512
on February 2, 1995.
On May 22, 1992, Clearfield Hills I Limited Partnership filed a notice
of intent to participate under the LIHPHRA program. The sale of the
property was completed on February 6, 1996. The sale price of the property
of approximately $3.2 million generated sufficient proceeds to the
Partnership to retire, at a discount, the purchase money note obligation of
the Partnership with respect to such property, which matured on October 30,
1994. The sale provided proceeds to the Partnership in excess of its
investment in the Local Partnership, and will result in a net financial
statement gain and a net tax gain in 1996 of approximately $1.8 million and
$2.4 million, respectively. The Managing General Partner intends to retain
all of the Partnership's share of the net sale proceeds for the repayment,
prepayment or purchase of outstanding purchase money notes of other Local
Partnerships, as discussed above. As such, the Managing General Partner
and/or its affiliates received no fees for services relating to the sale.
On March 1, 1994, New Village Apartments North filed a notice of
intent to participate under the LIHPHRA program. The sale of the property
was completed on February 6, 1996. The sale price of the property of
approximately $2.86 million generated sufficient proceeds to the
Partnership to retire, at a discount, the purchase money note obligation of
the Partnership with respect to such property, which matured on September
27, 1994. The sale provided proceeds to the Partnership in excess of its
investment in the Local Partnership, and will result in a net financial
statement gain and a net tax gain in 1996 of approximately $2.6 million and
$3.3 million, respectively. The Managing General Partner intends to retain
all of the Partnership's share of the net sale proceeds for the repayment,
prepayment or purchase of outstanding purchase money notes of other Local
Partnerships, as discussed above. As such, the Managing General Partner
and/or its affiliates received no fees for services relating to the sale.
The Partnership defaulted on its purchase money note relating to
Holiday Village Apartments on July 27, 1994 when the note matured and was
not paid. The default amount included principal and accrued interest of
$1,370,000 and $2,862,342, respectively. As of March 11, 1996, principal
and accrued interest totalling $1,370,000 and $3,701,377, respectively,
IV-14
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
were due. In June 1994, an offer was made to extend the maturity date of
this note to coincide with the future sale of the property under the
LIHPRHA program or refinancing of the first mortgage. As of March 11,
1996, discussions with the noteholder were ongoing. There is no assurance,
however, that the offer to extend the maturity date will be accepted.
Should the noteholder begin foreclosure proceedings on the Partnership's
interest in the related Local Partnership, the Partnership intends to
vigorously defend any action by the noteholder. However, there is no
assurance that the Partnership will be able to retain its interest in the
Local Partnership. The uncertainty about the continued ownership of the
Partnership's interest in the related Local Partnership does not impact the
Partnership's financial condition because the related purchase money note
is nonrecourse and secured solely by the Partnership's interest in the
Local Partnership. Therefore, should the investment in Holiday Village
Apartments not produce sufficient value to satisfy the related purchase
money note, the Partnership's exposure to loss is limited since the amount
of the nonrecourse indebtedness exceeds the carrying amount of the
investment in and advances to the Local Partnership. Thus, even a complete
loss of this investment would not have a material impact on the operations
of the Partnership.
On January 5, 1996, the Managing General Partner received $1,000 for
an option to purchase its limited partner interest in New Second Lakewood
Associates Limited Partnership (Second Lakewood). The sale was dependent
on the purchaser exercising the option by February 15, 1996 and completing
the transaction by March 15, 1996. On March 15, 1996, the option holder
requested an extension from the Managing General Partner of the February
15th and March 15th deadlines to April 15, 1996 and May 15, 1996,
respectively. On March 20, 1996, the Managing General Partner agreed to
this request and mailed an amendment to the option holder for signature.
As of March 20, 1996, the Managing General Partner was awaiting the signed
amendment as well as an additional $1,000 in consideration for the option
extension. There is no assurance that the amendment will be signed and
returned by the option holder or that the sale of the limited partner
interest will ultimately occur.
On June 30, 1993, the Managing General Partner completed the first
step of a two-step sales process for the sale of the Partnership's
interests in the Shadley and Countryside Local Partnerships. The first step
of the sales process was the refinancing of the loans on the properties.
The second step required for completion of the sales was to obtain approval
from the Illinois Housing Development Agency and HUD. The Partnership
received the required approvals for the sale of the Partnership's interest
in the Shadley and Countryside Local Partnerships on September 24, 1993 and
October 21, 1993, respectively. The net proceeds to the Partnership of
$5,002,990 from the refinancing of the mortgage loans were received by the
Partnership on July 1, 1993. The Partnership's purchase money note
obligations, aggregating $2,385,000 plus accrued interest, relating to the
two Local Partnerships were retired with a portion of the net proceeds.
The sales resulted in an aggregate net financial statement gain of
$2,693,169 and a net tax gain of approximately $6 million. The Partnership
made a distribution of $1,570,695 (or $21.37 per unit) to the Additional
Limited Partners on October 29, 1993 for the sale of the Partnership's
interest in the Shadley and Countryside Local Partnerships. Any remaining
undistributed net sales proceeds is being retained by the Partnership, as
discussed above. The Managing General Partner or its affiliates received
IV-15
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
net fees for services relating to the sale of the Partnership's interest in
the Shadley and Countryside Local Partnerships of $105,767 and $187,552 on
October 9, 1993 and October 22, 1993, respectively.
b. Interests in profits, losses and cash distributions
---------------------------------------------------
The Partnership has a 94.99% to 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 or
the intermediary limited partnership which invests in the Local
Partnership. The Partnership received cash distributions from the rental
operations of the Local Partnerships totalling $845,622, $712,622 and
$794,292 during the years ended December 31, 1995, 1994 and 1993, respect-
ively. As of December 31, 1995 and 1994, thirty-one and thirty-two,
respectively, of the Local Partnerships had surplus cash, as defined by
their respective agencies, in the amount of $3,144,436 and $2,731,352,
respectively, which is available for distribution in accordance with their
respective agency's regulations.
The cash distributions to the Partnership from the operations of the
rental properties may be limited by Department of Housing and Urban
Development (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
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, refinancing or liquidation of each Local Partnership, the
proceeds from the sale, refinancing or liquidation shall be distributed in
accordance with the provisions of the respective Local Partnership's
partnership agreement. In accordance with such provisions, the Partnership
would receive from such proceeds its 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 the respective
Local Partnership's partnership agreement, and (3) certain special
distributions to the general partners and related entities of the Local
Partnership.
c. Property matters
----------------
The following table reflects the amounts of advances made to the Local
Partnerships as of December 31, 1995 and 1994.
IV-16
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
<TABLE>
<CAPTION>
Local Partnership 1995 1994
----------------- ------------ ------------
<S> <C> <C>
Lakes of Northdale:
Principal amount of
funds advanced $ 54,500 $ 54,500
Accrued interest on
advances -- --
Second Lakewood:
Principal amount of
funds advanced 224,543 441,500
Accrued interest on
advances 617 67,811
------------ ------------
Totals $ 279,660 $ 563,811
============ ============
</TABLE>
The letter of credit related to the tax-exempt bonds on Lakes of
Northdale, which originally matured in June 1995, had been extended to
February 15, 1996. The letter of credit fee increased from its previous
level of 1% per annum to a maximum of 4% per annum in October 1995. The
Managing General Partner of Lakes of Northdale is currently negotiating for
the letter of credit issuer to purchase the existing tax-exempt bonds
issued by the Florida Housing Finance Agency and re-market these bonds in
June 1996. There is no assurance that Lakes of Northdale will be
successful in its efforts. If new financing is not obtained, the letter of
credit issuer could begin foreclosure proceedings on the Local
Partnership's property. The uncertainty about the Local Partnership's
continued ownership of the property does not impact the Partnership's
financial condition because the purchase money notes related to Lakes of
Northdale are nonrecourse and secured solely by the Partnership's interest
in the Local Partnership. Therefore, should the investment in Lakes of
Northdale not produce sufficient value to satisfy the related purchase
money notes, the Partnership's exposure to loss is limited since the amount
of the nonrecourse indebtedness exceeds the carrying amount of the
investment in and advances to the Local Partnership. Thus, even a complete
loss of this investment would not have a material impact on the operations
of the Partnership.
In 1989, Second Lakewood was experiencing rent losses due to units
being taken off the market because of roof leakage. The Partnership
advanced a total of $750,000 during 1990 to fund roof replacement in order
to maintain the marketability and income of the property. The loan bears
interest at 11% and is to be repaid from the property's cash flow. As of
December 31, 1995 and 1994, the outstanding loan to Second Lakewood
totalled $224,543 and $441,500, respectively. Accrued interest on the loan
was $617 and $67,811 as of December 31, 1995 and 1994, respectively. A
loan payment of $67,139 was received by the Partnership on January 16,
1996, with $65,424 and $1,715 being applied to principal and accrued
interest, respectively. HUD agreed to waive the 1990 first mortgage debt-
service payments so that up to $360,000 of the property's cash flow could
be used to repay the loan. HUD granted a reinstatement (that is, the loan
IV-17
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
is no longer in default) of the mortgage loan as a result of the 1990 debt-
service deferral, and the property resumed its original debt-service
payments effective April 1, 1994. In September 1995, HUD sold the mortgage
of Second Lakewood to a new mortgagee. The new mortgagee is now servicing
the loan and Second Lakewood is no longer subject to HUD regulatory
requirements. During the second quarter of 1993, Second Lakewood
experienced substantial fire damage to 19 of a total of 219 units,
resulting in four units being temporarily taken off the market. In
addition, the brick facade of the building was significantly damaged. The
fire was caused by an electrical transformer explosion. The property's
insurance carrier covered the cost of all repairs and rental losses in
excess of the $1,000 deductible which totalled $255,116. Repairs were
completed during the third quarter of 1994.
On September 30, 1995, the local general partner of Northridge Park
Limited Partnership (Northridge Park) restructured its existing first
mortgage. In conjunction with the restructuring, the Managing General
Partner restructured the related purchase money note, extending the
maturity from July 31, 1999 to October 1, 2025. In addition, the interest
rate on the purchase money note was lowered from 9% to 8.17%. The new
maturity date and interest rate of the purchase money note are the same as
the terms of Northridge Park's restructured mortgage.
The first mortgage loan on Clearfield Hills II originally matured on
October 2, 1995. The existing lender granted an extension of this loan to
October 31, 1995. The Local Partnership refinanced the mortgage with a new
lender on October 13, 1995. The new first mortgage principal balance of
$1,513,000 carries an interest rate of 8.32% per annum. From June 26, 1995
to October 9, 1995, the Partnership advanced a total of $49,260 to
Clearfield Hills II for closing costs. On October 13, 1995, the
Partnership received $45,310 from the refinancing proceeds as partial
reimbursement of these advances. The remaining $3,950 was repaid to the
Partnership on December 20, 1995 upon the release of certain escrows
related to the original mortgage.
Garden Court Apartments, located in Springfield, Illinois, received a
$330,000 grant from HUD to make certain improvements to the property. The
local general partner of Garden Court Apartments addressed security issues
as part of these improvements in an effort to improve occupancy.
Improvements made under this grant were completed in the fourth quarter of
1995.
In 1993, the Illinois Housing Development Agency issued new bonds to
refund the 1983 Series A bonds that financed Fairway Park Apartments. As a
result of the issuance of the new bonds, the interest rate was reduced from
10.3% to 7.4% annually.
Many of the rental properties owned by the Local Partnerships have
mortgages which are federally insured under Section 236 or Section
221(d)(3) of the National Housing Act, as amended. These properties may be
eligible for sale or refinancing, subject to numerous requirements, under
the LIHPRHA program. This program may provide incentives to owners of
qualifying multifamily housing who commit to permanently maintain their
properties as low to moderate income housing. Incentives available under
LIHPRHA include selling the property to qualified buyers or obtaining
supplemental financing for the property. As of March 11, 1996, members of
Congress were recommending substantial changes to the LIHPRHA program
IV-18
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
ranging from the elimination of the program to the redesigning of the
program. Substantial uncertainty exists as to whether any properties which
have already filed the notice of intent to participate under LIHPRHA will
qualify under a redesigned program, or as to whether the program will
continue at all.
The local general partners of the following properties have each filed
a notice of intent to participate under the LIHPRHA program:
<TABLE>
<CAPTION>
Property Date of Filing
------------------- ------------------
<S> <C>
Valley Vista November 4, 1992
River Run March 15, 1993
Cedar Point November 23, 1993
Thornwood House November 23, 1993
Forest Park May 23, 1994
Walnut Square May 23, 1994
Redden Gardens December 23, 1994
Holiday Village January 9, 1995
Cottonwood Park January 23, 1995
</TABLE>
On February 27, 1996, the local general partner's plan of action
regarding the sale of River Run was approved under the LIHPRHA program.
The local general partner is currently seeking a qualified purchaser for
the property. There is no assurance that a sale or supplemental financing
of River Run or any other of the above properties will occur.
Some of the rental properties owned by the Local Partnerships are
financed by state housing agencies. The Managing General Partner has been
working to develop a strategy to sell or refinance certain properties by
utilizing programs developed by these agencies. These programs may include
opportunities to sell the property to a qualifying purchaser who would
agree to maintain the property as low to moderate income housing in
perpetuity, or may include opportunities to refinance the property through
supplemental financing. The Managing General Partner continues to monitor
these programs to ascertain whether the properties would qualify within the
parameters of these programs and whether these programs would provide an
appropriate economic benefit to the limited partners of the Partnership.
Many of the rental properties owned by the Local Partnerships are
dependent on the receipt of housing assistance payments guaranteed by
contract under the HUD Section 8 program. The level of funding for the
Section 8 program, and HUD-insured multifamily housing in general, is
dependent upon the continuation of appropriations approved by Congress for
subsidy payments. In the event that the rental subsidy programs are
reduced or phased out, there is no assurance that the rental properties
will be able to maintain the occupancy levels necessary to pay debt service
and operating costs or that the rents necessary to pay debt service and
operating costs will be competitive with rents for comparable units in the
rental properties' market areas. While the Managing General Partner has no
reason to believe that HUD will not honor its obligations under the
IV-19
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
contracts, some uncertainty exists in light of the recent Congressional
scrutiny of appropriations for HUD programs.
In 1994, Natick Associates (DeAngeles Manor) and Diakonia Associates
(Matthew XXV) were negotiating sales for their respective properties. As a
result of recent Congressional scrutiny of the HUD Section 8 program, sales
negotiations for these properties have been stalled. There is no assurance
that a sale of either of these properties will occur.
d. Summarized financial information
--------------------------------
Summarized financial information for the Local Partnerships as of
December 31, 1995 and 1994 and for the years ended December 31, 1995, 1994
and 1993 is as follows:
IV-20
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
<TABLE>
<CAPTION>
COMBINED BALANCE SHEETS
December 31,
1995 1994
------------ ------------
<S> <C> <C>
Rental property, at cost, net of accumulated depreciation
of $89,244,173 and $83,255,939, respectively $136,070,343 $143,521,946
Land 16,511,777 18,183,829
Other assets 32,843,388 29,881,099
------------ ------------
Total assets $185,425,508 $191,586,874
============ ============
Mortgage notes payable $139,505,158 $142,522,596
Other liabilities 24,425,791 24,428,048
------------ ------------
Total liabilities 163,930,949 166,950,644
Partners' capital 21,494,559 24,636,230
------------ ------------
Total liabilities and partners' capital $185,425,508 $191,586,874
============ ============
</TABLE>
<TABLE>
<CAPTION>
COMBINED STATEMENTS OF OPERATIONS
For the years ended December 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
Rental $ 40,960,669 $ 39,885,653 $ 40,768,818
Other income, principally interest 2,450,769 1,872,739 1,969,007
------------ ------------ ------------
Total revenue 43,411,438 41,758,392 42,737,825
------------ ------------ ------------
Expenses:
Operating and other 28,457,155 27,084,843 26,480,057
Interest 7,987,695 8,741,795 9,489,060
Depreciation 8,130,495 8,275,946 8,394,269
Amortization 38,266 34,684 35,000
------------ ------------ ------------
Total expenses 44,613,611 44,137,268 44,398,386
------------ ------------ ------------
Net loss $ (1,202,173) $ (2,378,876) $ (1,660,561)
============ ============ ============
</TABLE>
IV-21
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
e. Reconciliation of the Local Partnerships' financial statement
-------------------------------------------------------------
net loss to income tax 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 of the
property for tax purposes as permitted by Internal Revenue Service (IRS)
regulations. These returns are subject to audit and, therefore, possible
adjustment by the IRS.
A reconciliation of the Local Partnerships' financial statement net
loss reflected above to the income tax loss for the years ended December
31, 1995, 1994 and 1993 is as follows:
IV-22
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
<TABLE>
<CAPTION> For the years ended December 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Financial statement net loss $ (1,202,173) $ (2,378,876) $ (1,660,561)
Adjustments:
Additional tax depreciation using accelerated methods,
net of depreciation on construction period expenses
capitalized for financial statement purposes (4,065,659) (4,405,027) (4,524,694)
Miscellaneous, net 354,880 (15,786) (795,019)
------------ ------------ ------------
Income tax loss $ (4,912,952) $ (6,799,689) $ (6,980,274)
============ ============ ============
</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 $1,470,000 which is equal to 2% of the
Additional Limited Partners' capital contributions to the Partnership. The
acquisition fee was capitalized and is being amortized over a forty-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 and to pay an annual incentive management fee (the
Management Fee), after all other expenses of the Partnership are paid. For the
years ended December 31, 1995, 1994 and 1993, the Partnership paid $132,284,
$109,488 and $94,002, respectively, as direct reimbursement of expenses incurred
on behalf of the Partnership. Such expenses are included in the consolidated
statements of operations as general and administrative expenses.
The amount of the Management Fee shall not exceed .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
$375,000, and
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, 1995, 1994 and 1993, the Part-
nership paid the Managing General Partner a Management Fee of $375,000. See
Note 4 for additional fees paid to the Managing General Partner and/or its
affiliates.
IV-23
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. RELATED-PARTY TRANSACTIONS - Continued
From April 1990 to January 1994, CRICO Management Corporation (CRICO), an
affiliate of the Managing General Partner provided consulting, accounting and
other services to Second Lakewood. Fees paid or accrued to CRICO for these
services amounted to $8,217 for the month ended January 31, 1994. Fees paid or
accrued were $96,970 for the year ended December 31, 1993. On February 1, 1994,
CRICO contributed its consulting contracts and personnel to CAPREIT Residential
Corporation (CAPREIT). CAPREIT was formed by CRI but is not currently owned or
controlled by CRI and/or its affiliates. On April 12, 1995, HUD approved
CAPREIT as the new management agent.
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, payable under certain conditions upon the
sale of the investment in a Local Partnership or the property its owns. The
payment of the fee is subject to certain restrictions, including achievement of
a certain level of sales proceeds and making certain minimum distributions to
limited partners. The Managing General Partner and/or its affiliates received
net fees for services relating to the sale of the Southgate property of $186,512
on February 2, 1995. No such fees were paid to the Managing General Partner
and/or its affiliates during the year ending December 31, 1994. During the year
ended December 31, 1993, the Managing General Partner and/or its affiliates
received fees totalling $293,319 relating to the sale of the Partnership's
interest in the Shadley and Countryside Local Partnerships. No fees were paid
to the Managing General Partner and/or its affiliates for services performed in
connection with the 1996 sales of Clearfield Hills I and New Village Apartments
North.
4. PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS
All profits and losses prior to the first date on which Additional Limited
Partners were admitted were allocated 98.49% to the Initial Limited Partner and
1.51% to the General Partners. Upon admission of the Special Limited Partner
and the Additional Limited Partners, the interest of the Initial Limited Partner
was reduced to .49%. The interest of the Additional Limited Partners is 97% and
the interest of the Special Limited Partner is 1%.
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
projects 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 affiliates, 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) except in the case of a refinancing, to each partner in an amount
equal to the positive balance in his capital account as of the
date of the sale, adjusted for operations and distributions to
that date, but before allocation of any profits for tax purposes
realized from such sale and allocated pursuant to the Partnership
IV-24
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS - Continued
Agreement;
(iv) to the limited partners (A) an aggregate amount of proceeds from
sale or refinancing and all prior sales or refinancing equal to
their capital contributions, without reduction for prior cash
distributions other than prior distributions of sale and
refinancing proceeds, plus (B) an additional amount equal to a
cumulative non-compounded 6% return on each limited partner's
capital contribution, reduced, but not below zero, by (1) an
annual amount equal to 50% of the losses for tax purposes plus
tax credits allocated to such limited partner and (2)
distributions of net cash flow to each limited partner, such
return, losses for tax purposes and net cash flow distributions
commencing on the first day of the month in which the capital
contribution was made;
(v) to the repayment of any unrepaid loans theretofore made by any
partner or any affiliate of the Partnership for Partnership
obligations and to the payment of any unpaid amounts owing to the
General Partners pursuant to the Partnership Agreement;
(vi) to the General Partners in the amount of their capital
contributions;
(vii) thereafter, for their services to the Partnership, in equal
shares to certain general partners, (or their designees) 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,
(viii) the remainder, 12% in the aggregate to the General Partners (or
their assignees), 3% to the Special Limited Partner and 85% in
the aggregate to the Initial Limited Partner and the Additional
Limited Partners (or their assignees) in accordance with their
respective partnership interests.
Fees payable to certain general partners (or their designees) under (vii)
above, together with all other property disposition fees and any other
commissions or fees payable upon the sale of apartment complexes, shall not in
the aggregate exceed the lesser of the competitive rate or 6% of the sales price
of the apartment complexes.
In addition, 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. In February 1995, the Managing General Partner and/or its affiliates
received net fees for services totalling $186,512 relating to the sale of the
Southgate property. No such fees were paid to the Managing General Partner
and/or its affiliates during the year ending December 31, 1994. During the year
ended December 31, 1993, the Managing General Partner and/or its affiliates
received fees totalling $293,319 relating to the sale of the Partnership's
interest in the Shadley and Countryside Local Partnerships. No fees were paid
to the Managing General Partner and/or its affiliates for services performed in
connection with the 1996 sales of Clearfield Hills I and New Village Apartments
North.
Pursuant to the Partnership Agreement, all cash available for distribution,
as defined, shall be distributed, not less frequently than annually, 97% to the
IV-25
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS - Continued
Additional Limited Partners, 1% to the Special Limited Partner, .49% to the
Initial Limited Partner and 1.51% in the aggregate to the General Partners after
payment of the Management Fee (see Note 4), as specified in the Partnership
Agreement. As defined in the Partnership Agreement, prior to the establishment
of any reserves as necessary by the Managing General Partner and after payment
of the Management Fee, the Partnership had cash available for distribution of
approximately $315,000, $33,000 and $0, for the years ended December 31, 1995,
1994 and 1993, respectively. The Partnership made a distribution of
approximately $745,000 (or $10.14 per unit) to the Additional Limited Partners
on April 28, 1995 for the sale of the Partnership's interest in the Southgate
Local Partnership. No distributions were declared or paid during 1994 because
any cash available for distribution is currently being retained by the
Partnership, as previously discussed. The Partnership made a distribution of
approximately $1,570,000 (or $21.37 per unit) to the Additional Limited Partners
on October 29, 1993 for the sale of the Partnership's interest in Shadley and
Countryside Local Partnerships.
5. RECONCILIATION OF THE PARTNERSHIP'S FINANCIAL STATEMENT NET LOSS TO
INCOME TAX 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 2e), including
losses in excess of related investment amounts. In addition, adjustments
arising from the imputation of interest on the Partnership's purchase money
notes for financial reporting purposes are eliminated for income tax purposes
(see Note 2a). These returns are subject to audit and, therefore, possible
adjustment by the IRS.
A reconciliation of the Partnership's financial statement net loss to the
income tax loss for the years ended December 31, 1995, 1994 and 1993 is as
follows:
IV-26
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. RECONCILIATION OF THE PARTNERSHIP'S FINANCIAL STATEMENT NET LOSS TO
INCOME TAX LOSS - Continued
<TABLE>
<CAPTION>
For the years ended December 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Financial statement net loss $(11,435,522) $(14,988,972) $ (9,928,194)
Adjustments:
Difference between the income tax losses and
financial statement losses related to the
Partnership's equity in the Local Partnerships'
losses (see Note 2e) (35,570) (5,357,018) (6,664,597)
Gain on disposition of investment in partnership
(see note 2a) (1,348,430) -- 3,082,314
Costs amortized over a shorter period for income
tax purposes (141,189) (143,862) (147,915)
Difference in interest expense due to interest
for consolidated partnerships and imputed
interest 3,927,594 2,649,591 1,922,697
------------ ------------ ------------
Income tax loss $ (9,033,117) $(17,840,261) $(11,735,695)
============ ============ ============
</TABLE>
6. CONTINGENCIES
In 1990, CRI, as Managing General Partner of the Partnership and various
other entities, subcontracted certain property-level asset management functions
for certain properties to Capital Management Strategies, Inc. (CMS). Among
these properties were properties owned by certain of the Local Partnerships in
which the Partnership invested. CMS was formed by Martin C. Schwartzberg, a
nominal general partner of the Partnership and a former stockholder of CRI, when
he cashed out of CRI and its related businesses as of January 1, 1990. Mr.
Schwartzberg agreed not to act as a general partner with respect to any of the
CRI-sponsored partnerships, including this Partnership, and has not done so
since that time. In late 1995, a dispute arose between CRI and CMS over the
funding level of the 1996 contract for CMS. On November 9, 1995, CRI filed a
complaint against CMS to determine the proper amount of fees to be paid in 1996
under the asset management agreement. CMS answered on January 10, 1996, but
asserted no counterclaims.
Thereafter, Mr. Schwartzberg launched a hostile consent solicitation to be
designated as managing general partner of approximately 125 private partnerships
sponsored by CRI. On January 18, 1996, Mr. Schwartzberg and CMS filed a
complaint in the Circuit Court of Montgomery County, Maryland (the Circuit
Court), against CRI and Messrs. Dockser and Willoughby (who are general partners
of the Partnership) alleging, among other things, that CRI and Messrs. Dockser
and Willoughby have breached the asset management agreement pursuant to which
Mr. Schwartzberg's company, CMS, agreed to perform limited functions related to
property-level issues for a portion of CRI's subsidized housing portfolio
(including some of the properties in which the Partnership invested), by
IV-27
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. CONTINGENCIES - Continued
reducing the proposed budget for 1996. The Partnership is not named as a
defendant in this action. Messrs. Dockser and Willoughby have entered an answer
denying all of Mr. Schwartzberg's claims. Messrs. Dockser and Willoughby have
publicly responded that Mr. Schwartzberg's suit is motivated by his budget
dispute with CRI and personal animosity. On February 6, 1996, CRI terminated
the CMS contract for cause. Mr. Schwartzberg and CMS responded by filing a
motion for injunctive relief in the Circuit Court, asking the court to enjoin
CRI from terminating the contract. In a ruling issued on February 12, 1996, the
Circuit Court, among other things, refused to grant the injunction requested by
CMS. A hearing in this case is scheduled for April 29, 1996. On February 12,
1996, the Circuit Court also issued a memorandum opinion and order enjoining CMS
and Mr. Schwartzberg from disclosing information made confidential under the
asset management agreement.
On February 1, 1996 and February 16, 1996, Mr. Schwartzberg sent letters to
the Partnership requesting investor lists and other forms of investor
information. On February 5, 1996, the Partnership, acting through its managing
general partner, CRI, denied Mr. Schwartzberg's request. On February 20, 1996,
counsel for the Partnership responded to Mr. Schwartzberg's second request,
denying that Mr. Schwartzberg had standing or a proper purpose for requesting
the investor lists. In view of Mr. Schwartzberg's solicitation efforts against
other CRI-sponsored partnerships, CRI anticipates that litigation may arise from
this request.
IV-28
<PAGE>
FINANCIAL STATEMENT SCHEDULE
IV-29
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON
-----------------------------------------------------
FINANCIAL STATEMENT SCHEDULE
-----------------------------
To the Partners
Capital Realty Investors-IV Limited Partnership
In connection with our audit of the consolidated financial statements of
Capital Realty Investors-IV Limited Partnership referred to in our report dated
March 11, 1996 (except for Note 2a., as to which the date is March 20, 1996),
which is included in this Form 10-K, we have also audited Schedule III as of
December 31, 1995, 1994 and 1993. We did not audit the financial statements for
thirty-nine, forty and forty of the Local Partnerships in 1995, 1994 and 1993,
respectively, which are accounted for as described in Note 1d. In our opinion,
this schedule presents fairly, in all material respects, the information
required to be set forth therein.
Grant Thornton LLP
Vienna, VA
March 11, 1996
IV-30
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION OF
LOCAL PARTNERSHIPS IN WHICH CAPITAL REALTY INVESTORS-IV LIMITED
PARTNERSHIP HAS INVESTED
December 31, 1995
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D
- -------------------- ------- ------------------------------- -------------------------------
Initial Costs Capitalized
Cost to Local Subsequent
Partnership to Acquisition
------------------------------- -------------------------------
Building
Description Encum- and Carrying
Operating Properties brances Land Improvements Improvements Costs (B)
- -------------------- ------- ----------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
Asbury Tower (A) $ 793,708 $ 11,866,083 $ 4,595,668 $ --
Asbury Park, NJ
(350-unit elderly
apartment complex)
Campbell Terrace 392,030 -- 11,497,807 545,347
Chicago, IL
(249-unit elderly
apartment complex)
Aggregate of remaining (A) 16,852,975 168,170,424 26,702,983 409,268
properties which are ----------- ------------ ----------- --------
individually less than 5%
of the total of Column E
Total $18,038,713 $180,036,507 $42,796,458 $954,615
=========== ============ =========== ========
</TABLE>
IV-31
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION OF
LOCAL PARTNERSHIPS IN WHICH CAPITAL REALTY INVESTORS-IV LIMITED
PARTNERSHIP HAS INVESTED
December 31, 1995
<TABLE>
<CAPTION>
COL. A COL. E COL. F COL. G COL. H COL. I
- -------------------- ------------------------------------------- ------------ ------- ------- ----------------
Gross amount at which Life upon
carried at close of period which dep-
------------------------------------------- Date reciation in
Building Accumulated of latest income
Description and Depreciation Const- Date statement is
Operating Properties Land Improvements Total (C) (D) (D) ruction Acquired computed (years)
- -------------------- ----------- ------------ ------------- ------------ ------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Asbury Tower $ 793,708 $ 16,461,751 $ 17,255,459 $ (6,391,513) 1973 8/2/84 5-25
Asbury Park, NJ
(350-unit elderly
apartment complex)
Campbell Terrace 392,512 12,042,672 12,435,184 (4,544,472) 1985 7/1/84 5-30
Chicago, IL
(249-unit elderly
apartment complex)
Aggregate of remaining 15,325,557 196,810,093 212,135,650 (78,308,188) 1970-1986 7/1/84 to 5-40
properties which are ----------- ------------ ------------- ------------ 4/1/85
individually less
than 5% of the total
of Column E
Total $16,511,777 $225,314,516 $ 241,826,293 $(89,244,173)
=========== ============ ============= ============
</TABLE>
IV-32
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
OF LOCAL PARTNERSHIPS IN WHICH
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP HAS INVESTED
December 31, 1995
(A) Secured by mortgage loans.
(B) Consists of capitalized interest and real estate taxes during the
construction period.
(C) The aggregate cost of land for federal income tax purposes is $17,111,295
and the aggregate cost of buildings and improvements for federal income tax
purposes is $249,573,105. The total of the above-mentioned items is
$266,684,400.
(D) Reconciliation of real estate
-----------------------------
IV-33
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
OF LOCAL PARTNERSHIPS IN WHICH
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP HAS INVESTED - Continued
December 31, 1995
<TABLE>
<CAPTION>
For the years ended December 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Balance at beginning of period $244,961,714 $242,246,771 $247,526,137
Improvements during the period 2,540,404 3,253,782 3,421,119
Deletions during the period (5,675,825) (538,839) (8,700,485)
------------ ------------ ------------
Balance at end of period $241,826,293 $244,961,714 $242,246,771
============ ============ ============
</TABLE>
Reconciliation of accumulated depreciation
------------------------------------------
<TABLE>
<CAPTION>
For the years ended December 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Balance at beginning of period $ 83,255,939 $ 75,039,668 $ 70,564,585
Depreciation expense for the period 8,130,495 8,275,946 8,394,269
Adjustments (2,142,261) (59,675) (3,919,186)
------------ ------------ ------------
Balance at end of period $ 89,244,173 $ 83,255,939 $ 75,039,668
============ ============ ============
</TABLE>
IV-34
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Method of Filing
- ------- -----------------------------
27 Financial Data Schedule Filed herewith electronically
IV-35
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH ANNUAL REPORT ON FORM 10-K.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 6,845,918
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 43,620,768
<CURRENT-LIABILITIES> 0
<BONDS> 111,755,033
0
0
<COMMON> 0
<OTHER-SE> (68,250,954)
<TOTAL-LIABILITY-AND-EQUITY> 43,620,768
<SALES> 0
<TOTAL-REVENUES> 678,524
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 750,323
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,418,899
<INCOME-PRETAX> (14,490,698)
<INCOME-TAX> 0
<INCOME-CONTINUING> (14,490,698)
<DISCONTINUED> 0
<EXTRAORDINARY> 3,055,176
<CHANGES> 0
<NET-INCOME> (11,435,522)
<EPS-PRIMARY> (150.92)
<EPS-DILUTED> (150.92)
</TABLE>
