<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, 1997
-----------------
Commission file number 0-13523
-----------------
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
1997 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Page
----
PART I
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Item 1. Business . . . . . . . . . . . . . . . . . . . . . I-1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . I-8
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . I-8
Item 4. Submission of Matters to a Vote
of Security Holders . . . . . . . . . . . . . . I-8
PART II
-------
Item 5. Market for the Registrant's Partnership
Interests and Related Partnership Matters . . . II-1
Item 6. Selected Financial Data . . . . . . . . . . . . . II-2
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . II-3
Item 8. Financial Statements and Supplementary Data . . . II-9
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . II-9
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-2
Item 13. Certain Relationships and Related Transactions . . III-3
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . IV-1
Signatures . . . . . . . . . . . . . . . . . . . . . . . . IV-4
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). The
Partnership originally made investments in forty-seven Local Partnerships. As
of December 31, 1997, the Partnership held investments in thirty-six 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 remained as the local
general partners in the Local Partnerships. The Partnership became the
principal limited partner in forty-four (thirty-three as of December 31, 1997)
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
I-1
<PAGE>
PART I
------
ITEM 1. BUSINESS - Continued
--------
partnerships which, in turn, have invested as general partners in the Local
Partnerships. An affiliate of the Managing General Partner of the Partnership
is also generally a general partner of the thirty-three 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.
A schedule of the apartment complexes owned by Local Partnerships in which
the Partnership has an investment follows.
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 Expiration
Mortgage Authorized for of
Name and Location Payable at Financed and/or Insured Number of Rental Asst. Section 8
of Apartment Complex 12/31/97 (2) and/or Subsidized Under Rental Units Under Sec. 8 HAP Contract
- -------------------- ------------ ----------------------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Asbury Tower $ 7,030,453 New Jersey Housing and 350 139 01/01/02
Asbury Park, NJ Mortgage Finance Agency
(NJHMFA)/236
Campbell Terrace 9,587,437 Illinois Housing Development 249 248 05/31/15
Chicago, IL Authority (IHDA)
Cannonsburg House 2,407,466 Pennsylvania Housing Finance 104 104 01/31/18
Cannonsburg, PA Agency (PHFA)
Cedar Point 2,382,138 IHDA/236 160 0 --
Springfield, IL
Char House 2,567,811 PHFA 104 104 06/30/19
Charleroi, PA
Chippewa County 1,664,170 Wisconsin Housing and Economic 109 109 07/14/02
Chippewa Falls, WI Development Authority (WHEDA)
Clearfield Hills II 1,487,135 Conventional Mortgage/FNMA 76 0 --
Clearfield, UT
Cottonwood Park 1,710,005 FNMA/236 126 6 06/30/98
Shawnee Mission, KS
Crescent Gardens 1,703,475 GMAC/Section 221(d)(4) of the 100 100 01/09/01
Wilson, NC National Housing Act (NHA)
De Angelis Manor 1,247,757 Rhode Island Housing and 96 96 11/30/08
West Warwick, RI Mortgage Finance Corporation
(RIHMFC)
Fairway Park Apts. 7,824,236 IHDA 210 42 06/30/04
Naperville, IL
Garden Court 6,132,550 Section 221 (d)(4) of the NHA/ 284 284 04/01/00
Springfield, IL Section 8
Glenridge Gardens 2,227,442 FNMA/236 120 24 05/31/99
Augusta, ME
Hale Ohana 1,481,000 Farmers Home Administration 30 29 12/12/16
Koloa, Kauai, HI (FHA)/515
Harborview 4,738,331 Section 221(d)(4) of the NHA 300 299 06/01/00
St. Croix,
U.S. Virgin Islands
</TABLE>
(continued)
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 Expiration
Mortgage Authorized for of
Name and Location Payable at Financed and/or Insured Number of Rental Asst. Section 8
of Apartment Complex 12/31/97 (2) and/or Subsidized Under Rental Units Under Sec. 8 HAP Contract
- -------------------- ------------ ----------------------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Highland Village $ 1,483,775 Massachusetts Housing Finance 111 53 06/05/12
Ware, MA Agency (MHFA)/236
Holiday Village 966,511 FHA/515 80 6 06/01/98 (4)
Park City, UT
Hometown Villages 1,733,660 WHEDA 178 178 06/01/05
Various cities, WI
Jewish Federation 4,055,434 NJHMFA/236 145 144 01/28/18
Cherry Hill, NJ
Lakes of Northdale 9,610,000 Florida Housing Finance 216 0 --
Tampa, FL Authority
Liberty Tower 2,374,546 PHFA 104 104 12/09/10
California, PA
Madison Square 3,983,193 Michigan State Housing Deve- 133 133 06/29/14
Grand Rapids, MI lopment Authority
Mary Allen West Tower 2,660,000 City of Galesburg 154 153 03/01/09
Galesburg, IL
Matthew XXV 1,254,421 RIHMFC 95 95 06/19/03
Warwick, RI
Northridge Park 5,284,524 California Housing Finance 104 0 --
Salinas, CA Agency (CHFA)
Pilgrim Tower East 5,568,148 CHFA 158 157 10/17/99
Pasadena, CA
Pilgrim Tower North 4,401,077 FNMA/236 258 205 10/31/98 (4)
Pasadena, CA
Redden Gardens 2,180,996 FNMA/236 150 29 09/30/98 (4)
Dover, NH
Riverview Manor 1,190,098 WHEDA 76 76 08/15/17
Fort Atkinson, WI
Scoville Center 2,984,121 WHEDA 151 151 08/31/18
Beloit, WI
</TABLE>
(continued)
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 Expiration
Mortgage Authorized for of
Name and Location Payable at Financed and/or Insured Number of Rental Asst. Section 8
of Apartment Complex 12/31/97 (2) and/or Subsidized Under Rental Units Under Sec. 8 HAP Contract
- -------------------- ------------ ----------------------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C>
Thornwood House $ 3,582,302 IHDA/236 183 73 01/31/16
University Park, IL
Tradewinds Terrace 1,592,753 FNMA/236 122 44 09/30/98 (4)
Traverse City, MI
Valley View Apts. 2,563,845 IHDA/236 179 0 --
Rockford, IL
Wellington Woods 2,016,387 FHA/515 109 73 10/19/99
Clarkson, NY
Westport Village 1,721,453 IHDA/236 121 12 01/01/98 (4)
Freeport, IL
Wollaston Manor 3,678,681 MHFA/236 164 41 04/01/15
Quincy, MA
- -------------------- ------------ -------- ------
Totals 36 $119,077,331 5,409 3,311
============ ======== ======
</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 1997 1996 1995 1994 1993 1997 1996 1995 1994 1993
- -------------------- ---- ---- ---- ---- ---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Asbury Tower 86% 94% 94% 92% 94% $ 5,486 $ 5,373 $ 5,272 $ 5,053 $ 5,139
Asbury Park, NJ
Campbell Terrace 100% 100% 100% 100% 100% 11,704 11,294 10,989 10,816 10,476
Chicago, IL
Cannonsburg House 97% 99% 96% 97% 98% 8,583 8,631 8,600 8,357 8,147
Cannonsburg, PA
Cedar Point 82% 96% 97% 95% 99% 4,384 4,446 4,477 4,340 4,281
Springfield, IL
Char House 100% 99% 100% 99% 98% 8,380 8,287 8,181 8,073 7,821
Charleroi, PA
Chippewa County 94% 94% 92% 94% 95% 5,109 5,097 5,063 5,059 6,787
Chippewa Falls, WI
Clearfield Hills II 86% 93% 100% 97% 99% 5,451 5,535 5,173 5,128 4,653
Clearfield, UT
Cottonwood Park 100% 98% 99% 99% 100% 4,210 4,207 4,213 4,218 4,018
Shawnee Mission, KS
Crescent Gardens 100% 99% 100% 100% 99% 4,980 4,980 4,980 4,873 4,759
Wilson, NC
De Angelis Manor 100% 100% 100% 100% 100% 8,446 8,457 8,838 8,335 8,193
West Warwick, RI
Fairway Park Apt. 83% 96% 94% 99% 98% 9,079 8,933 8,758 8,581 8,286
Naperville, IL
Garden Court 55% 70% 75% 75% 85% 3,748 4,133 4,284 4,476 5,101
Springfield, IL
Glenridge Gardens 95% 91% 86% 93% 91% 4,352 4,040 4,324 4,229 4,503
Augusta, ME
Hale Ohana 100% 96% 93% 97% 67% 8,919 8,970 8,837 8,290 6,123
Koloa, Kauai, HI
Harborview 100% 98% 99% 100% 99% 8,391 8,329 8,411 7,791 7,269
St. Croix,
U.S. Virgin Islands
</TABLE>
(continued)
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 1997 1996 1995 1994 1993 1997 1996 1995 1994 1993
- -------------------- ---- ---- ---- ---- ---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Highland Village 91% 95% 99% 100% 98% 5,522 5,442 5,313 5,245 5,127
Ware, MA
Holiday Village 98% 96% 99% 95% 100% 3,334 3,340 3,414 3,282 3,064
Park City, UT
Hometown Villages 96% 97% 91% 95% 92% 5,852 5,677 5,601 5,608 6,891
Various cities, WI
Jewish Federation 100% 100% 100% 97% 99% 9,472 9,475 8,929 8,813 8,606
Cherry Hill, NJ
Lakes of Northdale 94% 92% 89% 95% 94% $ 7,075 $ 6,949 $ 7,486 $ 7,151 $ 6,758
Tampa, FL
Liberty Tower 100% 99% 99% 96% 97% 8,252 8,324 8,270 8,077 7,871
California, PA
Madison Square 95% 98% 98% 97% 98% 7,256 7,397 7,170 7,115 7,105
Grand Rapids, MI
Mary Allen West Tower 100% 99% 100% 100% 100% 6,156 6,165 6,170 6,142 6,092
Galesburg, IL
Matthew XXV 97% 100% 100% 100% 100% 8,913 8,775 8,724 8,874 8,512
Warwick, RI
Northridge Park 94% 90% 91% 94% 89% 8,553 8,038 7,576 7,244 7,602
Salinas, CA
Pilgrim Tower East 100% 99% 100% 100% 100% 8,744 8,734 8,717 8,661 8,413
Pasadena, CA
Pilgrim Tower North 99% 98% 100% 100% 100% 4,601 4,625 4,663 4,321 3,965
Pasadena, CA
Redden Gardens 100% 100% 97% 100% 99% 4,689 4,694 4,717 4,560 4,434
Dover, NH
Riverview Manor 97% 100% 97% 100% 100% 5,588 5,668 5,639 5,599 5,522
Fort Atkinson, WI
Scoville Center 95% 98% 95% 99% 98% 5,333 5,303 5,220 5,131 7,794
Beloit, WI
</TABLE>
(continued)
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 1997 1996 1995 1994 1993 1997 1996 1995 1994 1993
- -------------------- ---- ---- ---- ---- ---- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Thornwood House 99% 100% 100% 100% 100% 4,905 4,832 4,665 4,496 4,324
University Park, IL
Tradewinds Terrace 96% 96% 95% 99% 97% 5,167 4,198 4,096 4,095 4,076
Traverse City, MI
Valley View Apts. 99% 98% 100% 100% 98% 4,389 4,265 4,071 3,877 3,667
Rockford, IL
Wellington Woods 100% 100% 97% 100% 100% 2,986 2,895 2,854 2,645 2,600
Clarkson, NY
Westport Village 96% 98% 98% 97% 97% 4,905 4,783 4,595 4,406 4,110
Freeport, IL
Wollaston Manor 99% 100% 99% 100% 100% 5,818 5,819 5,791 5,634 5,191
Quincy, MA
---- ---- ---- ---- ---- -------- -------- -------- -------- --------
Totals(3) 36 95% 97% 96% 97% 97% $ 6,354 $ 6,281 $ 6,224 $ 6,072 $ 6,036
==== ==== ==== ==== ==== ======== ======== ======== ======== ========
</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, 1997.
(3) The totals for the percentage of units occupied and the average effective
annual rental per unit are based on a simple average.
(4) The Section 8 contract expiration date reflects a one year extension from
the original expiration date, in accordance with Federal legislation.
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 July 2, 1997, New Second Lakewood Associates Limited Partnership sold
Second Lakewood. See the notes to the consolidated financial statements for
additional information pertaining to the sale.
Effective December 1, 1997, the Partnership assigned its partnership
interest in Valley Vista to the local managing general partner and withdrew from
I-8
<PAGE>
PART I
-------
ITEM 1. BUSINESS - Continued
--------
the Local Partnership. See the notes to the consolidated financial statements
for more information pertaining to the transfer of partnership interest.
There were no contemplated sales of investments in partnerships as of March
20, 1998.
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
-----------------
There are no material legal proceedings to which the Partnership is a
party.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
No matters were submitted to a vote of security holders during the fourth
quarter of 1997.
I-9
<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 formal market for resale
of interests in the Partnership. As a result, investors may be unable
to sell or otherwise dispose of their interests in the Partnership.
(b) As of March 20, 1998, there were approximately 7,000 registered
holders of limited partnership interests in the Partnership.
(c) On November 18, 1997, the Partnership distributed $1,469,300 ($20.00
per Additional Limited Partnership unit) to the Additional Limited
Partners. The distribution was a result of the sale of the property
relating to the Partnership's investment in Second Lakewood. On
October 31, 1996, the Partnership distributed $1,999,119 ($27.20 per
Additional Limited Partnership unit) to the Additional Limited
Partners. The distribution was a result of the sale of the properties
relating to the Partnership's investments in Clearfield Hills I,
Village North, River Run, Forest Park and Walnut Square. On April 28,
1995, the Partnership distributed $745,290 ($10.14 per Additional
Limited Partnership unit) to the Additional Limited Partners. The
distribution was a result of the sale of the property relating to the
Partnership's investment in Southgate Apartments. The Partnership
received distributions of $3,204,192, $872,629 and $845,622 from Local
Partnerships during 1997, 1996 and 1995, respectively. Some of the
Local Partnerships operate under restrictions imposed by the
government agencies that limit the cash return available to the
Partnership.
II-1
<PAGE>
PART II
-------
ITEM 6. SELECTED FINANCIAL DATA
-----------------------
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------------------------------------------------
1997 1996 1993 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Share of income (loss) from partnerships $ 3,733,232 $ 122,378 $ 245,013 $ (1,399,207) $ (12,883)
Interest and other income 556,329 546,446 433,511 359,536 227,959
Expenses (16,062,827) (15,974,088) (15,169,222) (13,949,301) (12,836,439)
Gain on disposition of investments in
partnerships 2,749,556 8,245,471 2,840,833 -- 2,693,169
Extraordinary gain from extinguishment
of debt 410,117 13,405,200 214,343 -- --
------------ ------------ ------------ ------------ ------------
Net (loss) income $ (8,613,593) $ 6,345,407 $(11,435,522) $(14,988,972) $ (9,928,194)
============ ============ ============ ============ ============
Net (loss) income allocated to Additional
Limited Partners (97%) $ (8,355,185) $ 6,155,045 $(11,092,457) $(14,539,303) $ (9,630,348)
============ ============ ============ ============ ============
Net (loss) income per unit of Additional
Limited Partnership Interest based on
73,500 units outstanding $ (113.68) $ 83.74 $ (150.92) $ (197.81) $ (131.03)
============ ============ ============ ============ ============
Cash distribution per unit of
Additional Limited Partnership
Interest based on 73,500 units
outstanding $ 20.00 $ 27.20 $ 10.14 $ -- $ 21.37
============ ============ ============ ============ ============
Total assets $ 43,517,097 $ 41,548,239 $ 43,620,768 $ 45,061,364 $ 47,178,378
============ ============ ============ ============ ============
Total remaining amounts due on investments,
including accrued interest on purchase
money notes $128,482,419 $122,219,645 $135,227,496 $129,630,374 $119,523,104
============ ============ ============ ============ ============
</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 properties (the "properties")
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 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 nonrecourse 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 a 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.
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 strategies to sell or refinance certain properties pursuant to programs
developed by these agencies or other potential buyers. These programs may
include opportunities to sell a property to a qualifying purchaser who would
agree to maintain the property as low to moderate income housing in perpetuity,
or to refinance a property, or to obtain supplemental financing. The Managing
General Partner continues to monitor certain state housing agency programs
and/or programs provided by certain lenders, to ascertain whether the properties
II-3
<PAGE>
PART II
-------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
would qualify within the parameters of a given program and whether these
programs would provide an appropriate economic benefit to the limited partners
of the Partnership.
Some of the rental properties owned by the Local Partnerships are dependent
on the receipt of project-based rental Housing Assistance Payments (HAP)
provided by HUD pursuant to Section 8 HAP contracts. Under Section 8 HAP
contracts, HUD guaranteed rental properties a high monthly rental payment for
each low and moderate income apartment unit maintained in the complex. Over the
years, annual increases have pushed rents on many of the Section 8 HAP
contracts above the market rate for comparable non-subsidized properties. In an
effort to deal with the increasing burden of funding Section 8 HAP contracts,
many of which are now expiring, President Clinton signed into law, effective
October 1, 1997, the Fiscal Year 1998 HUD appropriations bill which includes
Mark-to-Market legislation. The new legislation allows all Section 8 contracts
with rents at (or reduced to) less than 120% of fair market rents which expire
between now and September 1998 to be renewed for one year. At the beginning of
Fiscal Year 1999 (October 1, 1998), all expiring contracts with rents exceeding
comparable market rents and whose mortgages are insured by FHA will be subject
to the Mark-to-Market legislation.
Mark-to-Market implementation will reduce rental income at properties which
are currently subsidized at higher-than-market rental rates, and will therefore
lower cash flow available to meet mortgage payments and operating expenses.
Each affected property will undergo debt restructuring according to terms
determined by an individual property and operations evaluation. This will
involve reducing the first mortgage loan balance to an amount supportable by the
property, taking into account the property's operating expenses and reduced
income. The balance of the amount written down from the first mortgage will be
converted to a non-performing but accruing (soft) second mortgage.
Under current law, the write down of an FHA-insured mortgage under Mark-to-
Market would trigger cancellation of debt income to the additional limited
partners, a taxable event, even though no actual cash is received.
Additionally, the newly created second mortgage may accrue interest at a lower-
than-market rate, thereby generating a taxable "income." Proposals to counter
these tax effects have been presented; however, no form of relief has been
approved under IRS regulations at this time. Each property subject to Mark-to-
Market will be affected in a different manner, and it is very difficult to
predict the exact form of restructuring or potential tax liabilities to the
additional limited partners at this time.
In addition to the above, current HUD legislation no longer funds the Low
Income Housing Preservation and Home Ownership Act (LIHPRHA) which had provided
property owners with restricted opportunities to sell low income housing. With
the discontinuation of the LIHPRHA program and the uncertainty of continued
project-based Section 8 subsidies for properties with expiring HAP contracts,
the Managing General Partner remains committed to improving operations,
increasing efficiency, maintaining and increasing occupancy, working with state
housing agencies where appropriate, and effectively increasing salability of the
properties wherever possible.
The Managing General Partner is considering new strategies to deal with the
ever changing environment of affordable housing policy. Section 236 and Section
221(d)(3) properties that are in the 18th year of their mortgage may be eligible
II-4
<PAGE>
PART II
-------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
for pre-payment of the mortgage. Properties with expiring Section 8 HAP
contracts may become convertible to market-rate apartment properties.
Currently, there are a few lenders that will provide financing either to prepay
the existing mortgage or provide additional funds to allow the property to
convert to market-rate units. Where opportunities exist, the Managing General
Partner will continue to work with the Local Partnerships to develop strategies
that make economic sense for all parties involved.
Financial Condition/Liquidity
-----------------------------
As of December 31, 1997, the Partnership had approximately 7,000 investors
who subscribed to a total of 73,500 units of limited partnership interests in
the original amount of $73,500,000. The Partnership originally made investments
in forty-seven Local Partnerships, of which thirty-six remain as of December 31,
1997. The Partnership's liquidity, with unrestricted cash resources of
$10,197,871 as of December 31, 1997, 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, 1997, $50,400 of cash was
restricted for future interest payments on one of the purchase money notes. The
Partnership determined that the carrying amounts of its cash and cash
equivalents and restricted cash approximate fair value. As of March 20, 1998,
there were no material commitments for capital expenditures.
During 1997, 1996 and 1995 the Partnership received cash distributions of
$3,204,192, $872,629 and $845,622, respectively, from the Local Partnerships.
The Partnership's obligations with respect to its investments in Local
Partnerships, in the form of purchase money notes having a principal balance of
$42,047,504 (exclusive of unamortized discount on purchase money notes of
$11,203,592) plus accrued interest of $86,434,915 as of December 31, 1997, are
payable in full 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 and $1,330,000 matured on July 27, 1994
and August 31, 1997, respectively, but have not been paid or extended. Purchase
money notes originally due to mature on September 1, 1999, were retired at a
discount on January 2, 1997, in connection with the terms of an escrow
agreement. Purchase money notes originally due to mature December 15, 1999 were
paid off at a discount during 1997 in connection with the refinancing of the
respective local partnership's mortgage loan. The remaining purchase money
notes mature from 1999 to 2025. See the notes to the consolidated financial
statements for additional information pertaining to these purchase money notes.
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 Partnership's
inability to pay certain of the purchase money note principal and accrued
interest balances when due, and the resulting uncertainty regarding the
Partnership's continued ownership interest in the related Local Partnerships,
does not impact the Partnership's financial condition because the purchase money
II-5
<PAGE>
PART II
-------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
notes are nonrecourse and secured solely by the Partnership's interest in the
related Local Partnerships. Therefore, should the investment in any of the
Local Partnerships with maturing purchase money notes not produce sufficient
value to satisfy the related purchase money notes, the Partnership's exposure to
loss is limited because the amount of the nonrecourse indebtedness of each of
the maturing purchase money notes exceeds the carrying amount of the investment
in and advances to the related Local Partnerships. Thus, even a complete loss
of one of these Local Partnerships would not have a material impact on the
financial condition of the Partnership.
The Managing General Partner is continuing to investigate possible
alternatives to reduce the Partnership's 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 or buy down certain purchase money
note obligations. See the notes to the consolidated financial statements for
alternatives relating to specific properties.
The Partnership has determined that it is not practicable to estimate the
fair value of the purchase money notes, either individually or in the aggregate,
due to: (1) the lack of an active market for this type of financial instrument,
(2) the variable nature of purchase money note interest payments as a result of
fluctuating cash flow distributions received from the related Local
Partnerships, and (3) the excessive costs associated with an independent
appraisal of the purchase money notes.
The Partnership closely monitors its cash flow and liquidity position in an
effort to ensure that sufficient cash is available for operating requirements.
In 1997, 1996 and 1995, the receipt of distributions from Local Partnerships was
adequate to support operating cash requirements.
Results of Operations
---------------------
1997 versus 1996
- ----------------
The Partnership incurred a net loss in 1997 as opposed to net income in
1996 primarily due to a decrease in the extraordinary gain on extinguishment of
debt and a decrease in the gain on disposition of investments in partnerships
due to the 1996 sales of Clearfield Hills I, Village North, River Run, Walnut
Square and Forest Park. Partially offsetting the increase in the Partnership's
net loss was an increase in share of income from partnerships primarily due to
the receipt of proceeds related to the Valley Vista mortgage refinancing. See
the notes to the consolidated financial statements for additional information
pertaining to the sales and mortgage refinancing mentioned above.
1996 versus 1995
- ----------------
The Partnership's net income increased in 1996 from 1995 primarily due to
the extraordinary gain from extinguishment of debt and the gain on disposition
of investments related to the sale of Clearfield Hills I, Village North, River
II-6
<PAGE>
PART II
-------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
Run, Walnut Square and Forest Park during 1996. Contributing to the increase in
the Partnership's net income was an increase in interest income due to larger
cash and cash equivalent balances during 1996 and a decrease in general and
administrative expenses due to decreased payroll costs. Partially offsetting
the increase in the Partnership's net income was an increase in interest expense
due to the amortization of imputed interest, and a decrease in share of income
from partnerships due to a decrease in repayment of an advance received by the
Partnership from the New Second Lakewood Associates Limited Partnership (Second
Lakewood). Repayment of advances received by the Partnership from Second
Lakewood were recorded as income during 1996 and 1995 as the Partnership's
investment in the Local Partnership had been reduced to zero due to recurring
operating losses. See the notes to the consolidated financial statements for
additional information pertaining to these loan repayments and the 1996 sales
mentioned above.
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 8.17 to 15%. 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 1997, 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 are expected to
continue 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 share of income from Local Partnerships for the
years ended December 31, 1997, 1996 and 1995 did not include losses of
$1,348,436, $1,101,875 and $1,262,820, 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 $2,003,385, $35,513 and $28,777 received from four
Local Partnerships during 1997, 1996 and 1995, respectively, were offset against
the respective years' recorded losses because these amounts were in excess of
the Partnership's investment.
Inflation
---------
Inflation allows for increases in rental rates, usually offsetting any
higher operating and replacement costs. Furthermore, inflation generally does
not impact the fixed rate long-term financing under which real property
investments were purchased. Future inflation could allow for appreciated values
of the Local Partnerships' properties over an extended period of time as rental
revenues and replacement values gradually increase.
The following table reflects the combined rental revenues of the
Partnership's remaining 36 properties for the five years ended December 31,
II-7
<PAGE>
PART II
-------
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS - Continued
-----------------------------------
1997. Combined rental revenue amounts for years prior to 1997 have been
adjusted to reflect property sales and interests transferred during 1997, as
discussed in the notes to the consolidated financial statements.
II-8
<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,
----------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Combined Rental
Revenue $34,407,634 $34,024,635 $33,784,722 $32,887,722 $32,948,694
Annual Percentage
Increase 1.1% .7% 2.7% (.2%)
</TABLE>
Year 2000 Computer Issue
------------------------
The Year 2000 ("Y2K") Computer Issue refers to the inability of many
computer systems in use today to recognize "00" in the date field as the year
2000 and to recognize the year 2000 as a leap year. The Y2K problem arose
because, for many years, computer software programs, including programs embedded
in hardware, utilized only the last two digits to specify the year with the
assumption that the first two digits were "19." As a result, such programs may
not be able to recognize and process dates beyond 1999; rather they may
recognize and process "00," "01," "02,", etc. incorrectly as 1900, 1901, 1902,
instead of as 2000, 2001, 2002. In the opinion of computer experts, this could
cause such programs to create erroneous results, malfunction, or fail completely
unless corrective measures are taken.
The Partnership utilizes software and related computer technologies
essential to its operations that will be affected by the Y2K issue. The
Managing General Partner is studying what actions will be necessary to make its
computer systems Year 2000 compliant; certain upgrades are already scheduled.
The expense associated with these actions cannot presently be determined, but
the Managing General Partner does not expect it to be material.
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-9
<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, 61, has been the Chairman of the Board of CRI and a Director
since 1974. Prior to forming CRI, he served as President of Kaufman and Broad
Asset Management, Inc., an affiliate of Kaufman and Broad, Inc., which managed a
number of publicly held limited partnerships created to invest in low and
moderate income multifamily apartment properties. For a period of 2-1/2 years
prior to joining Kaufman and Broad, he served in various positions at HUD,
culminating in the post of Deputy FHA Commissioner and Deputy Assistant
Secretary for Housing Production and Mortgage Credit, where he was responsible
for all federally insured housing production programs. Before coming to
Washington, Mr. Dockser was a practicing attorney in Boston and also was a
special Assistant Attorney General for the Commonwealth of Massachusetts. He
holds a Bachelor of Laws degree from Yale University Law School and a Bachelor
of Arts degree, cum laude, from Harvard University. He is also Chairman of the
Board and a Director of CRIIMI MAE Inc. and CRIIMI, Inc.
H. William Willoughby, 51, has been President, Secretary and a Director of CRI
since January 1990 and was Senior Executive Vice President, Secretary and a
Director of CRI from 1974 to 1989. He is principally responsible for the
financial management of CRI and its associated partnerships. Prior to joining
CRI in 1974, he was Vice President of Shelter Corporation of America and a
number of its subsidiaries dealing principally with real estate development and
equity financing. Before joining Shelter Corporation, he was a senior tax
accountant with Arthur Andersen & Co. He holds a Juris Doctor degree, a Master
of Business Administration degree and a Bachelor of Science degree in Business
Administration from the University of South Dakota. He is also a Director and
executive officer of CRIIMI MAE Inc. and CRIIMI, Inc.
Ronald W. Thompson, 51, is Group Executive Vice President-Hotel Asset
Management. Prior to joining CRI in 1985, he was employed at the Hyatt
Organization where he most recently served as the General Manager of the Hyatt
Regency in Flint, Michigan. During his nine year tenure with Hyatt, he held
senior management positions with the Hyatt Regency in Dearborn, Michigan, the
Hyatt in Richmond, Virginia, the Hyatt in Winston-Salem, North Carolina and the
Hyatt Regency in Atlanta, Georgia. Before joining Hyatt, Mr. Thompson worked
in London, England for the English Tourist Board as well as holding management
positions in Europe, Australia, and New Zealand in the hotel industry. Mr.
Thompson received his education in England where he received a business degree
in Hotel Administration from Winston College.
III-1
<PAGE>
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - Continued
--------------------------------------------------
Susan R. Campbell, 39, is Executive Vice President and Chief Operating Officer.
Prior to joining CRI in March 1985, she was a budget analyst for the B. F. Saul
Advisory Company. She holds a Bachelor of Science degree in General Business
from the University of Maryland.
Melissa Cecil Lackey, 42, is Senior Vice President and General Counsel. Prior
to joining CRI in 1990, she was associated with the firms of Zuckerman, Spaeder,
Goldstein, Taylor & Kolker in Washington, D.C. and Hirsch & Westheimer in
Houston, Texas. She holds a Juris Doctor degree from the University of Virginia
School of Law and a Bachelor of Arts degree from the College of William & Mary.
(d) There is no family relationship between any of the foregoing directors
and executive officers.
(f) Involvement in certain legal proceedings.
None.
(g) Promoters and control persons.
Not applicable.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
(a), (b), (c), (d), (e), (f), (g), (i), (j), (k) and (l)
The Partnership has no officers or directors. However, in accordance
with the Partnership Agreement, and as disclosed in the public
offering, various kinds of compensation and fees were paid or are
payable to the General Partners and their affiliates. Additional
information required in these sections is incorporated herein by
reference to Notes 3 and 4 of the notes to the consolidated financial
statements contained in Part IV, Item 14.
(h) 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, 1997.
(b) Security ownership of management.
The following table sets forth certain information concerning all
units beneficially owned, as of December 31, 1997, by each director
III-2
<PAGE>
PART III
--------
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
---------------------------------------------------
MANAGEMENT - Continued
----------
and by all directors and officers as a group of the Managing General
Partner of the Partnership.
<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 (5 persons) None 0%
</TABLE>
(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
accrued by the Partnership to the General Partners or their
affiliates, is incorporated herein by reference. Note 3 of the notes
to the consolidated financial statements, which contains disclosure of
related party transactions, is also incorporated herein by reference.
III-3
<PAGE>
PART III
--------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Continued
----------------------------------------------
(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-4
<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-5
Reports of Independent Certified Public
Accountants - Local Partnerships in which
Capital Realty Investors-IV Limited
Partnership has invested IV-6
Consolidated Balance Sheets as of December 31,
1997 and 1996 IV-7
Consolidated Statements of Operations for the
years ended December 31, 1997, 1996 and 1995 IV-8
Consolidated Statements of Changes in Partners'
Deficit for the years ended
December 31, 1997, 1996 and 1995 IV-9
Consolidated Statements of Cash Flows for
the years ended December 31, 1997, 1996 and
1995 IV-10
Notes to Consolidated Financial Statements IV-11
(a) 2. Financial Statement Schedules
-----------------------------
Included in Part IV of this report are the
following schedules for the year ended
December 31, 1997, 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-29
Schedule III - Real Estate and Accumulated
Depreciation IV-30
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 Registrant's
Registration Statement on Form S-11, as amended, dated June
7, 1984.)
Exhibit No. 27 - Financial Data Schedule
Exhibit No. 99 - Other Exhibits
a. Prospectus of the Partnership, dated June 12, 1985
(Incorporated by reference to 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, 1997.
(c) Exhibits
--------
The list of Exhibits required by Item 601 of Regulation S-K is
included in Item (a)3., above.
IV-2
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
------------------------------------------------------
FORM 8-K - Continued
--------
(d) Financial Statement Schedules
-----------------------------
See Item (a)2., above.
IV-3
<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.
Managing General Partner
March 31, 1998 by: /s/ William B. Dockser
- ----------------- ---------------------------------
DATE William B. Dockser, Director,
Chairman of the Board,
and Treasurer
(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 31, 1998 by: /s/ H. William Willoughby
- ----------------- ---------------------------------
DATE H. William Willoughby,
Director, President
and Secretary
March 31, 1998 by: /s/ Michael J. Tuszka
- ----------------- ---------------------------------
DATE Michael J. Tuszka
Vice President
and Chief Accounting Officer
(Principal Financial Officer
and Principal Accounting Officer)
IV-4
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
To the Partners
Capital Realty Investors-IV Limited Partnership
We have audited the consolidated balance sheets of Capital Realty
Investors-IV Limited Partnership (a Maryland limited partnership) as of December
31, 1997 and 1996, and the related consolidated statements of operations,
changes in partners' deficit and cash flows for the years ended December 31,
1997, 1996 and 1995. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of certain Local Partnerships. The Partnership's share of income or
loss from these Local Partnerships constitutes $1,342,157 of income, $262,827 of
losses and $666,622 of losses in 1997, 1996 and 1995, respectively, included in
the Partnership's net income or loss. The financial statements of these Local
Partnerships were audited by other auditors whose reports thereon have been
furnished to us, and our opinion expressed herein, insofar as it relates to the
amount included for these Local Partnerships, is based solely upon the reports
of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based upon our audits and the reports of other auditors,
the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Capital Realty Investors-IV
Limited Partnership as of December 31, 1997 and 1996, and the consolidated
results of its operations, changes in partners' deficit and cash flows for the
years ended December 31, 1997, 1996 and 1995, in conformity with generally
accepted accounting principles.
Grant Thornton LLP
Vienna, VA
March 20, 1998
IV-5
<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, 1998, in
accordance with the Securities and Exchange Commission's continuing
hardship exemption granted January 22, 1998.
IV-6
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
-------------------------------
1997 1996
------------- -------------
<S> <C> <C>
Investments in and advances to partnerships $ 30,902,384 $ 30,456,822
Cash and cash equivalents 10,197,871 8,871,297
Restricted cash 50,400 585,810
Acquisition fees, principally paid to related parties, net
of accumulated amortization of $368,785 and $358,374,
respectively 751,413 819,825
Property purchase costs, net of accumulated amortization
of $339,819 and $346,512, respectively 677,643 777,328
Other assets 937,386 37,157
------------- -------------
Total assets $ 43,517,097 $ 41,548,239
============= =============
LIABILITIES AND PARTNERS' DEFICIT
Due on investments in partnerships $ 30,843,912 $ 26,931,672
Accrued interest payable 86,434,915 78,413,302
Accounts payable and accrued expenses 216,960 99,062
Consulting fees payable to related parties 8,869 8,869
------------- -------------
Total liabilities 117,504,656 105,452,905
------------- -------------
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 (6,921,002) (5,451,702)
Offering costs (7,562,894) (7,562,894)
Accumulated losses (133,007,163) (124,393,570)
------------- -------------
Total partners' deficit (73,987,559) (63,904,666)
------------- -------------
Total liabilities and partners' deficit $ 43,517,097 $ 41,548,239
============= =============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
IV-7
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Share of income from partnerships $ 3,733,232 $ 122,378 $ 245,013
------------ ------------ ------------
Other revenue and expenses:
Revenue
Interest and other income 556,329 546,446 433,511
------------ ------------ ------------
Expenses
Interest 15,361,971 15,278,276 14,418,899
Management fee 375,000 375,000 375,000
General and administrative 166,558 163,763 207,778
Professional fees 102,382 95,386 101,361
Amortization 56,916 61,663 66,184
------------ ------------ ------------
16,062,827 15,974,088 15,169,222
------------ ------------ ------------
Total other revenue and expenses (15,506,498) (15,427,642) (14,735,711)
------------ ------------ ------------
Loss before gain on disposition
of investments in partnerships (11,773,266) (15,305,264) (14,490,698)
------------ ------------ ------------
Gain on disposition of investments in
partnerships 2,749,556 8,245,471 2,840,833
------------ ------------ ------------
Loss before extraordinary gain from
extinguishment of debt (9,023,710) (7,059,793) (11,649,865)
Extraordinary gain from extinguishment of
debt 410,117 13,405,200 214,343
------------ ------------ ------------
Net (loss) income $ (8,613,593) $ 6,345,407 $(11,435,522)
============ ============ ============
Net (loss) income allocated to General Partners (1.51%) $ (130,065) $ 95,816 $ (172,676)
============ ============ ============
Net (loss) income allocated to Initial and Special Limited
Partners (1.49%) $ (128,343) $ 94,546 $ (170,389)
============ ============ ============
Net (loss) income allocated to Additional Limited
Partners (97%) $ (8,355,185) $ 6,155,045 $(11,092,457)
============ ============ ============
Net (loss) income per unit of Additional Limited Partnership
Interest based on 73,500 units outstanding $ (113.68) $ 83.74 $ (150.92)
============ ============ ============
</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 CHANGES IN PARTNERS' DEFICIT
<TABLE>
<CAPTION>
Initial and
Special Additional
General Limited Limited
Partners Partners Partners Total
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Partners' deficit,
January 1, 1995 $(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)
Distribution of $27.20
per Additional Limited
Partnership Interest -- -- (1,999,119) (1,999,119)
Net income 95,816 94,546 6,155,045 6,345,407
----------- ----------- ------------ ------------
Partners' deficit,
December 31, 1996 (1,893,505) (1,868,899) (60,142,262) (63,904,666)
Distribution of $20.00
per Additional Limited
Partnership Interest -- -- (1,469,300) (1,469,300)
Net loss (130,065) (128,343) (8,355,185) (8,613,593)
----------- ----------- ------------ ------------
Partners' deficit
December 31, 1997 $(2,023,570) $(1,997,242) $(69,966,747) $(73,987,559)
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
IV-9
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31,
-----------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (8,613,593) $ 6,345,407 $(11,435,522)
Adjustments to reconcile net (loss) income to net cash used
in operating activities:
Share of income from partnerships (3,733,232) (122,378) (245,013)
Gain on disposition of investments in partnerships (2,749,556) (8,245,471) (2,840,833)
Extraordinary gain from extinguishment of debt (410,117) (13,405,200) (214,343)
Payment of purchase money note interest (365,614) (304,873) (342,518)
Amortization of discount on purchase money notes 5,137,417 4,298,552 3,255,277
Amortization of deferred costs 56,916 61,663 66,184
Changes in assets and liabilities:
Increase in other assets (900,229) (22,925) (4,227)
Decrease (increase) in accrued interest receivable
on advances to partnerships 2,738 (2,121) 67,192
Increase in accrued interest payable 10,223,652 10,979,724 11,163,622
Increase (decrease) in accounts payable 117,898 (8,758) 24,306
------------ ------------ ------------
Net cash used in operating activities (1,233,720) (426,380) (505,875)
------------ ------------ ------------
Cash flows from investing activities:
Net proceeds from disposition of investments in partnerships 2,860,737 11,998,519 4,712,726
Receipt of distributions from partnerships 3,204,192 872,629 845,622
Repayment of advances to partnerships 80,740 143,803 216,958
Investment released (held) in escrow 535,410 (541,010) 69,400
------------ ------------ ------------
Net cash provided by investing activities 6,681,079 12,473,941 5,844,706
------------ ------------ ------------
Cash flows from financing activities:
Pay-off of purchase money notes and related interest (2,608,746) (7,969,398) (3,217,005)
Payment of purchase money note principal (42,739) (8,865) (10,973)
Distributions to Additional Limited Partners (1,469,300) (1,999,119) (745,290)
------------ ------------ ------------
Net cash used in financing activities (4,120,785) (9,977,382) (3,973,268)
------------ ------------ ------------
Net increase in cash and cash equivalents 1,326,574 2,070,179 1,365,563
Cash and cash equivalents, beginning of year 8,871,297 6,801,118 5,435,555
------------ ------------ ------------
Cash and cash equivalents, end of year $ 10,197,871 $ 8,871,297 $ 6,801,118
============ ============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 1,258,260 $ 1,479,424 $ 792,523
============ ============ ============
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
IV-10
<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 properties 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 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 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
properties. All activity between the three intermediary limited
partnerships and the Partnership has been eliminated in consolidation.
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, 1997 and 1996, 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 $13,044,976 and $15,165,646, respectively. Since the
IV-11
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Partnership has no further obligation to advance funds or provide financing
to these Local Partnerships, the excess losses have not been reflected in
the accompanying consolidated financial statements. As of December 31,
1997 and 1996, cumulative cash distributions of $2,253,946 and $250,561,
respectively, have been received from the Local Partnerships for which the
Partnership's carrying value is zero. These distributions are recorded as
increases in the Partnership's share of income from partnerships.
Costs incurred in connection with acquiring these investments have
been capitalized and are being amortized using the straight-line method
over the estimated useful lives of the properties owned by the Local
Partnerships.
e. Cash and cash equivalents
-------------------------
Cash and cash equivalents consist of all money market funds, time and
demand deposits, repurchase agreements and commercial paper with original
maturities of three months or less.
f. Restricted cash
---------------
Restricted cash consists of 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.
g. 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.
h. Income taxes
------------
For federal and state income tax purposes, each partner reports on his
or her personal income tax return his or her share of the Partnership's
income or loss as determined for tax purposes. Accordingly, no provision
(credit) has been made for income taxes in these consolidated financial
statements.
i. Use of estimates
----------------
In preparing financial statements in conformity with generally
accepted accounting principles, the Partnership is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the
date of the financial statements, and of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
IV-12
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
j. Fair value of financial instruments
-----------------------------------
The financial statements include estimated fair value information as
of December 31, 1997, as required by Statement of Financial Accounting
Standards (SFAS) No. 107, "Disclosure About Fair Value of Financial
Instruments." Such information, which pertains to the Partnership's
financial instruments (primarily cash and cash equivalents and purchase
money notes), is based on the requirements set forth in SFAS No. 107 and
does not purport to represent the aggregate net fair value of the
Partnership.
The balance sheet carrying amounts for cash and cash equivalents
approximate estimated fair values of such assets.
The Partnership has determined that it is not practicable to estimate
the fair value of the purchase money notes, either individually or in the
aggregate, due to: (1) the lack of an active market for this type of
financial instrument, (2) the variable nature of purchase money note
interest payments as a result of fluctuating cash flow distributions
received from the related Local Partnerships, and (3) the excessive costs
associated with an independent appraisal of the purchase money notes.
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS
a. Due on investments in partnerships
----------------------------------
As of December 31, 1997 and 1996, the Partnership held limited
partnership interests in thirty-six and thirty-eight Local Partnerships,
respectively, which were organized to develop, construct, own, maintain and
operate rental apartment properties which provide housing principally to
the elderly and to individuals and families of low or moderate income. The
remaining principal amounts due on investments in the Local Partnerships
follow.
IV-13
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
<TABLE>
<CAPTION>
December 31,
---------------------------
1997 1996
------------ ------------
<S> <C> <C>
Purchase money notes due in:
1994 $ 1,370,000 $ 1,370,000
1997 1,330,000 1,861,100 (1)
1999 36,682,504 37,910,243
2000 2,165,000 2,165,000
Thereafter 500,000 500,000
------------ ------------
Subtotal 42,047,504 43,806,343
Less: unamortized discount (11,203,592) (16,874,671)
------------ ------------
Total $ 30,843,912 $ 26,931,672
============ ============
</TABLE>
(1) The $1.861 million due in 1997 as of December 31, 1996 includes
$531,100 which represents the Partnership's remaining purchase money
note obligation relating to Forest Park. As discussed below, in
connection with the sale of Forest Park on September 19, 1996, this
amount was placed in a certificate of deposit held in escrow until
January 2, 1997, at which time it was paid to satisfy the
Partnership's remaining purchase money note obligation relating to
Forest Park.
The purchase money notes have stated interest rates ranging from 8.17%
to 15%, certain of which are compounded annually. Unamortized discounts
are based on an imputed interest rate of 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
$1,330,000 matured on August 31, 1997 but have not been paid, as discussed
below. Purchase money notes originally due to mature on September 1, 1999,
were retired at a discount on January 2, 1997, in connection with the terms
of an escrow agreement, as discussed below. The remaining purchase money
notes mature from 1999 to 2025.
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 Partnership's inability to pay certain of the purchase
IV-14
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
money note principal and accrued interest balances when due, and the
resulting uncertainty regarding the Partnership's continued ownership
interest of the related Local Partnerships, does not impact the
Partnership's financial condition because the purchase money notes are
nonrecourse and secured solely by the Partnership's interest in the related
Local Partnerships. Therefore, should the investment in any of the Local
Partnerships with maturing purchase money notes not produce sufficient
value to satisfy the related purchase money notes, the Partnership's
exposure to loss is limited because the amount of the nonrecourse
indebtedness of each of the maturing purchase money notes exceeds the
carrying amount of the investment in and advances to the related Local
Partnerships. Thus, even a complete loss of one of these Local
Partnerships would not have a material impact on the financial condition of
the Partnership.
Interest expense on the Partnership's purchase money notes for the
years ended December 31, 1997, 1996 and 1995 was $15,361,971, $15,278,276
and $14,418,899, respectively. The accrued interest on the purchase money
notes of $86,434,915 and $78,413,302 as of December 31, 1997 and 1996,
respectively, is due on the respective maturity dates of the purchase money
notes or earlier, if the Local Partnerships have distributable net cash
flow, as defined in the relevant Local Partnership agreements.
Clearfield Hills I, Forest Park, River Run,
-------------------------------------------
Village North and Walnut Square
-------------------------------
During 1996, the Partnership paid off, at a discount, the purchase
money note obligations relating to New Forest Park Associates Limited
Partnership (Forest Park), New Walnut Square Associates Limited Partnership
(Walnut Square), River Run Company (River Run), New Village Apartments
North (Village North), and Clearfield Hills I Limited Partnership
(Clearfield Hills I), in connection with the sales of these properties as
discussed below.
Holiday Village
---------------
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 defaulted amount included principal and accrued interest of
$1,370,000 and $2,862,342, respectively. As of March 20, 1998, principal
and accrued interest totaling $1,370,000 and $4,995,748, respectively, were
due. The Managing General Partner and the noteholder continue to negotiate
settlement options, and as of March 20, 1998, negotiations between the
Managing General Partner and the noteholder were ongoing. There is no
assurance that an agreement will be reached. Should the noteholder begin
foreclosure proceedings on the Partnership's interest in the related Local
Partnership, the Partnership intends to vigorously contest 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, as
discussed above.
IV-15
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
Redden Gardens
--------------
The Partnership defaulted on its purchase money notes relating to
Redden Development Company (Redden Gardens) on August 31, 1997 when the
notes matured and were not paid. The defaulted amount included principal
and accrued interest of $1,330,000 and $2,783,593, respectively. As of
March 20, 1998, principal and accrued interest of $1,330,000 and
$2,980,365, respectively, were due. In accordance with the purchase money
notes, the Partnership submitted a plan of action to cure the default. The
Managing General Partner proposed a five year extension on the purchase
money notes. This offer was rejected by the purchase money noteholders.
On February 12, 1998, at the request of the purchase money noteholders, a
subsequent proposal to extend the purchase money notes for five years was
forwarded to the purchase money noteholders. As of March 20, 1998, the
purchase money noteholders had not responded to this proposal. The
Managing General Partner commissioned a rental market study and is
evaluating the feasibility of converting the property to market-rate. No
conclusion has been reached as of March 20, 1998. There is no assurance
that the property will be converted nor is there any assurance that an
agreement will be reached with the purchase money noteholders.
Accordingly, there can be 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, as
discussed above.
b. Interests in profits, losses and cash distributions made by
-----------------------------------------------------------
Local Partnerships
------------------
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 and mortgage refinancings of the Local Partnerships totaling
$3,204,192, $872,629 and $845,622 during the years ended December 31, 1997,
1996 and 1995, respectively. As of December 31, 1997 and 1996, thirty and
twenty-eight, respectively, of the Local Partnerships had surplus cash, as
defined by their respective agencies, in the amount of $3,215,613 and
$2,693,709, respectively, which may be available for distribution in
accordance with their respective agencies' regulations.
The cash distributions to the Partnership from the operations of the
rental properties may be limited by U.S. 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 or refinancing of a property owned by a Local Partnership,
or upon liquidation of a Local Partnership, the proceeds from such sale,
refinancing or liquidation shall be distributed in accordance with the
IV-16
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
respective provisions of each Local Partnership's partnership agreement.
In accordance with such provisions, the Partnership would receive from such
proceeds its respective percentage interest of any remaining proceeds,
after payment of (1) all debts and liabilities of the Local Partnership and
certain other items, (2) the Partnership's capital contributions plus
certain specified amounts as outlined in each partnership agreement, and
(3) certain special distributions to the general partners and related
entities of the Local Partnership.
c. Property matters
----------------
The advances, and accrued interest thereon, made to the Local
Partnerships were as follows.
IV-17
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
<TABLE>
<CAPTION>
December 31,
-------------------------------------
Local Partnership 1997 1996
----------------- ------------ ------------
<S> <C> <C>
Lakes of Northdale:
Principal amount of funds advanced $ 54,500 $ 54,500
Second Lakewood:
Principal amount of funds advanced -- 80,740
Accrued interest on advances -- 2,738
------------ ------------
Total $ 54,500 $ 137,978
============ ============
</TABLE>
Campbell Terrace
----------------
During 1997, the local managing general partner of Campbell Terrace
Associates Limited Partnership (Campbell Terrace) received and rejected an
offer from a third party to purchase the property.
Clearfield Hills I
------------------
On February 6, 1996, Clearfield Hills I, a 100 unit apartment complex
located in Clearfield, Utah, was sold. The sale of the property generated
sufficient proceeds to the Partnership to retire, at a discount, the
purchase money note obligation of the Partnership with respect to the
property. The sale resulted in a net financial statement gain in 1996 of
approximately $1.8 million, of which approximately $50,000 resulted from
the retirement of the purchase money note obligation with respect to the
property. The federal tax gain was approximately $2.4 million.
Forest Park
-----------
On September 19, 1996, Forest Park, a 284 unit apartment complex
located in New Orleans, Louisiana, was sold. The sale of the property
generated sufficient proceeds to the Partnership to retire, at a discount,
a portion of the Partnership's purchase money note obligation with respect
to the property. The proceeds were also net of $531,100 which was used to
purchase a certificate of deposit which was held in escrow until January 2,
1997, at which time all principal and interest accrued up to three percent
per annum on the certificate of deposit was used to retire the
Partnership's remaining purchase money note obligation with respect to the
property. All interest that accrued on the certificate of deposit in
excess of three percent per annum was received by the Partnership.
Accordingly, the accompanying financial statements include $531,100 of
restricted cash equivalents as of December 31, 1996, which represents the
remaining principal balance which became due on January 2, 1997, in
accordance with the escrow agreement. The sale resulted in a net financial
statement gain of approximately $7.3 million, of which approximately $4.8
IV-18
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
million resulted from the retirement of the purchase money note obligation
with respect to the property. The federal tax gain was approximately $10.1
million.
Garden Court
------------
The report of the auditors on the financial statements of Garden Court
Associates Limited Partnership (Garden Court) for the year ended December
31, 1997 indicated that substantial doubt existed about the ability of the
Local Partnership to continue as a going concern due to negative cash flow
resulting from decreasing occupancy levels. As of December 31, 1997,
Garden Court reported a net operating loss of approximately $304,000 for
1997 and a 55% occupancy level. Garden Court has been accruing management
fees payable to the local managing general partner, who is also the
management agent, in order to remain current on the mortgage note secured
by the property. The Partnership's investment in Garden Court was
previously reduced to zero as a result of losses from the Local Partnership
during prior years. In addition, the Partnership did not issue any
purchase money notes or debt instruments in connection with its investment
in Garden Court. Therefore, the uncertainty about the Local Partnership's
continued ownership of the property does not impact the Partnership's
financial condition. Furthermore, the complete loss of this investment
would not have a material impact on the financial condition of the
Partnership.
Highland Village
----------------
The Managing General Partner is currently negotiating an extension on
the purchase money notes related to Highland Village. The purchase money
notes, which aggregate a principal amount of $1.1 million, are due to
mature on October 31, 1999. In connection with the proposed extension of
the purchase money notes, the Managing General Partner, the local managing
general partner and the purchase money noteholders are jointly exploring
various options to refinance the Massachusetts Housing Finance Agency
(MHFA) and HUD Section 236 interest rate subsidized mortgage loan related
to this property. There is no assurance that the noteholders will agree to
an extension on the purchase money notes, or that a refinancing of the
mortgage loan will be obtained.
Jewish Federation
-----------------
The purchase money notes relating to Jewish Federation Apartments
Associates (Jewish Federation), the aggregate principal amount of which is
$1.3 million, are due to mature October 31, 1999. In 1997, the Managing
General Partner entered into an agreement with the purchase money
noteholders to extend the maturity date for five years, subject to the
donation and transfer by the Local Partnership of an unimproved portion of
the property to an entity affiliated with the local managing general
partner. The Local Partnership had entered into an agreement to make such
donation and transfer, but the transaction was subject to HUD approval,
which approval was denied in January, 1998. The local managing general
partner is now searching for alternative financing. There is no assurance
that such financing will be obtained.
IV-19
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
River Run
---------
On August 27, 1996, River Run, a 100 unit apartment complex located in
Macomb, Illinois was sold. The sale of the property generated sufficient
cash proceeds to the Partnership to retire, at a discount, the
Partnership's purchase money note obligation with respect to the property.
The sale resulted in a net financial statement gain in 1996 of
approximately $1.4 million, of which approximately $405,000 resulted from
the retirement of the purchase money note obligation with respect to the
property. The federal tax gain was approximately $3.2 million.
Second Lakewood
---------------
The Partnership advanced a total of $750,000 to Second Lakewood during
1990 due to rent losses experienced by the Local Partnership resulting from
roof leakage. The outstanding loan and interest accrued thereon totalled
$80,740 and $2,738, respectively, as of December 31, 1996. On March 7,
1997, the loan and accrued interest thereon of $80,740 and $4,366,
respectively, were paid to the Partnership by the Local Partnership in full
satisfaction of the outstanding amount.
On July 2, 1997, Second Lakewood, a 219 unit apartment complex located
in Schaumberg, Illinois was sold. The sale of the property generated cash
proceeds to the Partnership of approximately $1.7 million at closing.
Subsequent to closing, the Partnership received additional funds totaling
$253,385 related to the Partnership's share of the release of funds held in
security deposits, insurance accounts, real estate tax escrows and other
accounts. Additionally subsequent to closing, the Partnership paid $42,008
as of March 20, 1998 related to outstanding expense invoices of the Local
Partnership. The sale resulted in a net financial statement gain of
approximately $1.9 million. The federal tax gain was approximately $10.7
million.
Southgate Apartments
--------------------
On January 31, 1995, Southgate, a 292 unit apartment complex located
in Schenectady, New York, was sold. The sale of the property generated
sufficient proceeds to the Partnership to retire, at a discount, the
purchase money note obligation of the Partnership with respect to the
property. The sale resulted in a net financial statement gain in 1995 of
$3,055,176, of which $214,343 resulted from the retirement of the purchase
money note obligation with respect to the property. The federal tax gain
was approximately $7 million.
Valley Vista
------------
On August 22, 1997, Valley Vista closed on the refinancing of its
mortgage loan. Proceeds of approximately $2.1 million generated from the
refinancing were used to retire, at a discount, the remaining purchase
money note obligation of the Partnership with respect to such property,
resulting in an extraordinary gain from extinguishment of debt of
approximately $410,000. The proceeds from the refinancing used to retire
the Partnership's purchase money note obligation were in excess of the
IV-20
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
Partnership's basis in Valley Vista and are included in share of income
from partnerships. Additionally, effective December 1, 1997, the
Partnership assigned its partnership interest in Valley Vista to the local
managing general partner and withdrew from the Local Partnership. On
January 13, 1998, the Partnership received $910,000 related to the
assignment of its interest in Valley Vista. These proceeds were in excess
of the Partnership's basis in Valley Vista, resulting in financial
statement gain of $834,000 during 1997. The federal tax gain was
approximately $5.3 million.
Village North
-------------
On February 6, 1996, Village North, a 92 unit apartment complex
located in Salt Lake City, Utah, was sold. The sale of the property
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 resulted in a net financial statement gain in 1996 of
approximately $2.6 million, of which approximately $1.5 million resulted
from the retirement of the purchase money note obligation with respect to
the property. The federal tax gain was approximately $3.3 million.
Walnut Square
-------------
On September 19, 1996, Walnut Square, a 284 unit apartment complex
located in New Orleans, Louisiana, was sold. The sale of the property
generated sufficient proceeds to the Partnership to retire, at a discount,
the Partnership's purchase money note obligation with respect to the
property. The sale resulted in a net financial statement gain of
approximately $8.6 million, of which approximately $6.7 million resulted
from the retirement of the purchase money note obligation with respect to
the property. The federal tax gain was approximately $11.4 million.
d. Affordable Housing Legislation
------------------------------
President Clinton signed the Fiscal Year 1998 HUD appropriations bill
into law, effective October 1, 1997. The new legislation allows all
Section 8 contracts with rents at (or reduced to) less than 120% of fair
market rents which expire between now and September 1998 to be renewed for
one year. At the beginning of Fiscal Year 1999 (October 1, 1998), all
expiring contracts with rents exceeding comparable market rents and whose
mortgages are insured by FHA will be subject to the Mark-to-Market
legislation.
Mark-to-Market implementation will reduce rental income at properties
which are currently subsidized at higher-than-market rental rates, and will
therefore lower cash flow available to meet mortgage payments and operating
expenses. Each affected property will undergo debt restructuring according
to terms determined by an individual property and operations evaluation.
This will involve reducing the first mortgage loan balance to an amount
supportable by the property, taking into account the property's operating
expenses and reduced income. The balance of the amount written down from
the first mortgage will be converted to a non-performing but accruing
(soft) second mortgage. The Section 8 HAP contracts for the following
properties expire during the government's fiscal year 1998.
IV-21
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
<TABLE>
<CAPTION>
Units
Authorized for Expiration of
Number of Rental Assistance Section 8
Property Rental Units Under Section 8 HAP Contract
-------- ------------ ----------------- -------------
<S> <C> <C> <C>
Cottonwood Park 126 6 06/30/98
Holiday Village 80 6 06/01/98
Redden Gardens 150 29 09/30/98
Tradewinds Terrace 122 44 09/30/98
Westport Village 121 12 01/01/98
</TABLE>
With the uncertainty of continued project-based Section 8 subsidies
for properties with expiring HAP contracts, there is no assurance that
these rental properties will be able to maintain the rental income and
occupancy levels necessary to pay operating costs and debt service. It is
difficult to predict the impact on the Local Partnerships and the resulting
impact on the Partnership at this time.
e. Summarized financial information
--------------------------------
Summarized financial information for the Local Partnerships at
December 31, 1997 and 1996 and for the years ended December 31, 1997, 1996
and 1995 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>
COMBINED BALANCE SHEETS
December 31,
-----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Rental property, at cost, net of accumulated depreciation
of $90,172,043 and $88,421,256, respectively $106,742,080 $120,045,089
Land 13,686,895 14,087,370
Other assets 32,904,569 32,640,343
------------ ------------
Total assets $153,333,544 $166,772,802
============ ============
Mortgage notes payable $119,077,331 $127,498,668
Other liabilities 15,855,840 23,958,565
------------ ------------
Total liabilities 134,933,171 151,457,233
Partners' capital 18,400,373 15,315,569
------------ ------------
Total liabilities and partners' capital $153,333,544 $166,772,802
============ ============
</TABLE>
IV-23
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS - Continued
<TABLE>
<CAPTION>
COMBINED STATEMENTS OF OPERATIONS
For the years ended December 31,
---------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Revenue:
Rental $ 36,006,190 $ 38,687,957 $ 40,960,669
Other income, principally interest 2,527,768 2,404,385 2,450,769
------------ ------------ ------------
Total revenue 38,533,958 41,092,342 43,411,438
------------ ------------ ------------
Expenses:
Operating and other 23,748,801 26,497,472 28,457,155
Interest 7,672,201 7,598,988 7,987,695
Depreciation 7,466,998 7,927,617 8,130,495
Amortization 119,654 157,541 38,266
------------ ------------ ------------
Total expenses 39,007,654 42,181,618 44,613,611
------------ ------------ ------------
Net loss before extraordinary gain from extinguishment of debt (473,696) (1,089,276) (1,202,173)
Extraordinary gain from extinguishment of debt 3,739,360 -- --
------------ ------------ ------------
Net income (loss) $ 3,265,664 $ (1,089,276) $ 1,202,173)
============ ============ ============
</TABLE>
f. Reconciliation of the Local Partnerships' financial statement
-------------------------------------------------------------
net income (loss) to taxable income (loss)
------------------------------------------
For federal income tax purposes, the Local Partnerships report on a
basis whereby: (1) certain revenue and the related assets are recorded when
received rather than when earned; (2) certain costs are expensed when paid
or incurred rather than capitalized and amortized over the period of
benefit; and (3) a shorter life is used to compute depreciation on the
property as permitted by Internal Revenue Service (IRS) regulations. These
returns are subject to examination and, therefore, possible adjustment by
the IRS.
A reconciliation of the Local Partnerships' financial statement net
income (loss) reflected above to the taxable income (loss) follows.
IV-24
<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,
---------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Financial statement net income (loss) $ 3,265,664 $ (1,089,276) $ (1,202,173)
Adjustments:
Additional tax depreciation using accelerated methods,
net of depreciation on construction period expenses
capitalized for financial statement purposes (2,465,138) (3,597,191) (4,065,659)
Miscellaneous, net 543,455 (73,954) 354,880
------------ ------------ ------------
Taxable income (loss) $ 1,343,981 $ (4,760,421) $ (4,912,952)
============ ============ ============
</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. For the years ended December 31, 1997, 1996 and
1995, the Partnership paid $89,997, $109,837 and $132,284, 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.
Additionally, in accordance with the terms of the Partnership Agreement,
the Partnership is obligated to pay an annual incentive management fee (the
Management Fee), after all other expenses of the Partnership are paid. 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, 1997, 1996 and 1995, the Part-
nership paid the Managing General Partner a Management Fee of $375,000.
IV-25
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. RELATED-PARTY TRANSACTIONS - Continued
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 it 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. No such fees were earned by the Managing General Partner
and/or its affiliates during the year ended December 31, 1997. During the year
ended December 31, 1996, the Managing General Partner and/or its affiliates
earned net fees of $26,606 for services performed in connection with the sale of
the property relating to the Partnership's investment in River Run. As of
December 31, 1997, $8,869 of these fees had not been paid and were accordingly
classified as consulting fees payable to related parties in the accompanying
financial statements. On March 25, 1998, these fees were paid. No fees were
paid to the Managing General Partner and/or its affiliates in connection with
the 1996 sales of Clearfield Hills I, New Village Apartments North, Forest Park
and Walnut Square. The Managing General Partner and/or its affiliates received
net fees of $186,512 for services performed in connection with the sale of the
property relating to the Partnership's investment in Southgate on February 2,
1995.
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
Agreement;
(iv) to the limited partners (A) an aggregate amount of proceeds from
sale or refinancing and all prior sales or refinancings equal to
their capital contributions, without reduction for prior cash
distributions other than prior distributions of sale and
IV-26
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS - Continued
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 properties, shall not in
the aggregate exceed the lesser of the competitive rate or 6% of the sales price
of the apartment properties.
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. No such fees were earned by the Managing General Partner and/or its
affiliates during the year ended December 31, 1997. During the year ended
December 31, 1996, the Managing General Partner and/or its affiliates earned net
fees of $26,606 for services performed in connection with the sale of the
property relating to the Partnership's investment in River Run. As of December
31, 1997, $8,869 of these fees had not been paid and were accordingly classified
as consulting fees payable to related parties in the accompanying financial
statements. On March 25, 1998, these fees were paid. No fees were paid to the
Managing General Partner and/or its affiliates in connection with the 1996 sales
of Clearfield Hills I, New Village Apartments North, Forest Park and Walnut
Square. The Managing General Partner and/or its affiliates received net fees of
$186,512 for services performed in connection with the sale of the property
relating to the Partnership's investment in Southgate on February 2, 1995.
Pursuant to the Partnership Agreement, all cash available for distribution,
as defined, shall be distributed, not less frequently than annually, 97% to the
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
IV-27
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. PARTNERSHIP PROFITS AND LOSSES AND DISTRIBUTIONS - Continued
payment of the Management Fee, (see Note 3), as specified in the Partnership
Agreement. As defined in the Partnership Agreement, prior to the establishment
of any reserves deemed necessary by the Managing General Partner and after
payment of the Management Fee, the Partnership's cash available for distribution
was approximately $783,000, $396,000 and $315,000, for the years ended December
31, 1997, 1996 and 1995, respectively.
On November 18, 1997, the Partnership distributed $1,469,300 ($20.00 per
Additional Limited Partnership Unit) to the Additional Limited Partners from the
proceeds of the sale of Second Lakewood. On October 31, 1996, the Partnership
distributed $1,999,119 ($27.20 per Additional Limited Partnership unit) to the
Additional Limited Partners from the proceeds of the sales of Clearfield Hills
I, Village North, River Run, Forest Park and Walnut Square. On April 28, 1995,
the Partnership distributed $745,290 ($10.14 per Additional Limited Partnership
Unit) to the Additional Limited Partners from the proceeds of the sale of
Southgate. The Managing General Partner intends to retain all of the
Partnership's remaining undistributed net sale proceeds for the possible
repayment, prepayment or purchase of the Partnership's outstanding purchase
money notes related to other Local Partnerships.
5. RECONCILIATION OF THE PARTNERSHIP'S FINANCIAL STATEMENT NET (LOSS) INCOME
TO TAXABLE INCOME (LOSS)
For federal income tax purposes, the Partnership reports on a basis
whereby: (1) certain expenses are amortized rather than expensed when incurred;
(2) certain costs are amortized over a shorter period for tax purposes, as
permitted by IRS Regulations and (3) certain costs are amortized over a longer
period for tax purposes. The Partnership records its share of losses from its
investments in limited partnerships for federal income tax purposes as reported
on the Local Partnerships' federal income tax returns (see Note 2f), 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) income
to taxable income (loss) follows.
IV-28
<PAGE>
CAPITAL REALTY INVESTORS-IV LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. RECONCILIATION OF THE PARTNERSHIP'S FINANCIAL STATEMENT NET (LOSS) INCOME
TO TAXABLE INCOME (LOSS) - Continued
<TABLE>
<CAPTION>
For the years ended December 31,
---------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Financial statement net (loss) income $ (8,613,593) $ 6,345,407 $(11,435,522)
Adjustments:
Difference between the income tax losses and
financial statement losses related to the
Partnership's equity in the Local Partnerships'
losses 4,661,607 3,153,917 (1,384,000)
Costs amortized over a shorter period for income
tax purposes (17,754) (134,920) (141,189)
Difference in interest expense due to interest
for consolidated partnerships and imputed
interest 5,257,516 5,347,345 3,927,594
Difference between the income tax interest
income and financial statement interest
income 1,076,459 (499) --
Miscellaneous -- (82,195) --
------------ ------------ ------------
Taxable income (loss) $ 2,364,235 $ 14,629,055 $ (9,033,117)
============ ============ ============
</TABLE>
IV-29
<PAGE>
FINANCIAL STATEMENT SCHEDULE
IV-30
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON
-----------------------------------------------------
FINANCIAL STATEMENT SCHEDULE
-----------------------------
To the Partners
Capital Realty Investors-IV Limited Partnership
In connection with our audits of the consolidated financial statements of
Capital Realty Investors-IV Limited Partnership referred to in our report dated
March 20, 1998, which is included in this Form 10-K, we have also audited
Schedule III as of December 31, 1997, 1996 and 1995. We did not audit the
financial statements for certain of the Local Partnerships in 1997, 1996 and
1995, 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 20, 1998
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, 1997
<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 $ 4,971,416 $ --
Asbury Park, NJ
(350-unit elderly
apartment complex)
Campbell Terrace (A) 392,030 -- 12,064,544 545,347
Chicago, IL
(249-unit elderly
apartment complex)
Harborview (A) 367,992 10,888,460 231,355
St. Croix, U.S. Virgin Islands
(300-unit multi-family
apartment complex)
Lakes of Northdale (A) 1,695,881 9,863,185 715,994
Tampa, FL ----------- ------------ ----------- --------
(216-unit multi-family
apartment complex)
Subtotal 3,249,611 32,617,728 17,983,309 545,347
----------- ------------ ----------- --------
Aggregate of remaining (A) 11,576,655 111,014,783 33,204,317 409,268
properties (32) which are ----------- ------------ ----------- --------
individually less than 5%
of the total of Column E
Total $14,826,266 $143,632,511 $51,187,626 $954,615
=========== ============ =========== ========
</TABLE>
IV-32
<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 - Continued
December 31, 1997
<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 $ 16,837,499 $ 17,631,207 $ (7,765,510) 1973 8/2/84 5-25
Asbury Park, NJ
(350-unit elderly
apartment complex)
Campbell Terrace 392,512 12,609,409 13,001,921 (5,401,080) 1985 7/1/84 5-30
Chicago, IL
(249-unit elderly
apartment complex)
Harborview 367,992 11,119,815 11,487,807 (3,455,948) 1975 6/25/84 5-30
St. Croix,
U.S. Virgin Islands
(300-unit multi-family
apartment complex)
Lakes of Northdale 1,749,505 10,525,555 12,275,060 (4,759,770) 1985 9/27/84 5-40
Tampa, FL ----------- ------------ ------------- ------------
(216-unit multi-family
apartment complex)
Subtotal 3,303,717 51,092,278 54,395,995 (21,382,308)
----------- ------------ ------------- ------------
Aggregate of remaining 10,383,178 145,821,845 156,205,023 (68,789,735) 1970-1986 7/1/84 to 5-40
properties (32) ----------- ------------ ------------- ------------ 4/1/85
which are individually
less than 5% of the total
of Column E
Total $13,686,895 $196,914,123 $ 210,601,018 $(90,172,043)
=========== ============ ============= ============
</TABLE>
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
December 31, 1997
(A) Secures mortgage loans.
(B) Consists of capitalized interest and real estate taxes
during construction.
(C) The aggregate cost of land for federal income tax purposes
is $13,303,792 and the aggregate cost of buildings and
improvements for federal income tax purposes is $217,011,646.
The total of the above-mentioned items is $230,315,438.
(D) Reconciliation of real estate
-----------------------------
<TABLE>
<CAPTION>
For the years ended December 31,
---------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Balance at beginning of period $222,553,715 $241,826,293 $244,961,714
Additions during period 2,545,258 2,303,014 2,540,404
Deletions during period (14,497,955) (21,575,592) (5,675,825)
------------ ------------ ------------
Balance at end of period $210,601,018 $222,553,715 $241,826,293
============ ============ ============
</TABLE>
Reconciliation of accumulated depreciation
------------------------------------------
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Balance at beginning of period $ 88,421,256 $ 89,244,173 $ 83,255,939
Depreciation expense for the period 7,466,998 7,927,617 8,130,495
Deletions during period (5,716,211) (8,750,534) (2,142,261)
------------ ------------ ------------
Balance at end of period $ 90,172,043 $ 88,421,256 $ 89,244,173
============ ============ ============
</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 10-K.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 10,248,271
<SECURITIES> 0
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0
0
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</TABLE>
